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To: Ilaine who wrote (108164)	6/11/2001 11:27:39 PM
From: Mark Adams	Read Replies (1) \| Respond to of 436258

the huge current account deficit, high private debt and low savings ratio All three of which have been discussed at length over the past week. Does BIS really have an accurate picture of the US situation? I saw this in the 'Of interest section' of a bridge report on a McTeer comment. It suggests that the outcome of the tax cut/rebates is not known yet. It also suggests that the news item is either stale or BIS is behind the times. All I see is a media mantra- debt a problem, people not saving, trade deficit. What is the motivation behind whiping up J6P? Zurich, June 11 (BridgeNews) - The ongoing strength of the dollar, and large capital inflows to the U.S. offer grounds for hope that the U.S. economy will enjoy a "rapid rebound in spending and growth" and avoid an extended economic slowdown, according to the latest Bank for International Settlement's (BIS) report released Monday. * * * The report said there are a number of reasons supporting a quick recovery in the U.S., "with consumers still having assets vastly in excess of their liabilities" and market analysts seeing company profits returning to double-digit growth, with resulting higher investments. However others question the desirability and likelihood of such a quick recovery as there are still "many well-recognized U.S. financial imbalances." These include historically high consumer and corporate debt, "and a mounting external debt as well," it said. "For those who would consider it prudent to avoid a sharp rebound, it is perhaps fortunate that the same financial imbalances make such an outcome seem less likely," BIS said. Although equity prices have recently fallen sharply, "by most traditions they still seem highly valued," it said. BIS said the Federal Reserve had cut interest rates to help offset the sharp slowdown, but since then "worries about inflation have been voiced more frequently, as long rates rose above levels seen prior to the easing." The near-term outlook will also be influenced by the "ultimate shape of the tax cut legislation proposed by the new administration," it said. A tax reduction of around $1.75 trillion, to be implemented between 2002-2011, has been approved by Congress, but it remains unclear whether any rebates will be agreed for the current year. If the economy does recover quickly, such a tax rebate could "worsen underlying savings deficiencies" although tax cuts would be more "appealing" if the economy weakened further, it said. "What can be said with more certainty is that restoring prospects for a recovery in profits will go a long way toward offsetting any prolonged economic weakness," BIS said. "Fortunately the U.S. has many attributes in this regard, with labor markets and wages more flexible, and the legal structure for organizing debt workouts, and closing excess capacity is well established." BIS stressed the financial industry, "while sharing in the diminished expectations for profits, appears generally sound." "The fact that the overhang of investment goods is primarily in the IT sector, where depreciation rates are rapid, is also expected to prove helpful," it said. "Moreover, since the savings and loan crisis of the early 1990's, politicians have understood more clearly that the early resolution of financial sector's problems is ultimately much less costly than forbearance," it said. End