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To: patron_anejo_por_favor who wrote (181753)	7/21/2002 3:50:29 PM
From: Tommaso	Respond to of 436258

Yes, we finally got a replacement copy of the Times that hadn't been there in the morning. I noticed that the "News of the Week" section as well as the business sections and the front page were much taken up with the stock markets. The only thing that will surprise me about the markets tomorrow is if they stay flat all day long.

To: patron_anejo_por_favor who wrote (181753)	7/21/2002 3:55:48 PM
From: patron_anejo_por_favor	Read Replies (2) \| Respond to of 436258

Gretchen M., in another Pulitzer-prize caliber article, points out that the gains from BubbleBoy's 500+ BP rate cuts have already been "spent" by the economy. More evidence for an ongoing debt trap mechanism, IMO. She also throws a nice crackback at IBM's pension scam along the way. nytimes.com With Stocks in Crisis, Greenspan's Nostrums Fall Short By GRETCHEN MORGENSON When Alan Greenspan spoke on Capitol Hill last week, Washington politicians were as worshipful as ever. Back on Wall Street and Main Street, however, it is becoming painfully clear that Mr. Greenspan's ability to revive the economy has lost its punch. Look no further than the almost 400-point drop in the Dow industrials on Friday. Mr. Greenspan's aggressive interest rate cuts were supposed to buoy the economy. Unfortunately, the sickly stock market is acting as a counterweight to any buoyancy. Using history as a guide, the stock market should be higher now than it was a year ago. Since 1948, six months after a recession's trough, stocks have jumped an average of 24 percent from the previous year. But at the end of June, six months from the recession's probable end, stocks were down 18 percent from last year. That means the market has underperformed its typical post-recessionary move by 40 percentage points. Jan Hatzius, the senior economist at Goldman, Sachs who provided these data points, has concluded that Mr. Greenspan's aggressive rate cuts have already been "spent" in the economy, especially in housing. Unfortunately, the effect of the stock market's sorry performance has yet to be felt. As a result, Mr. Hatzius thinks that economic growth will be stuck between 2 and 3 percent well into 2003. While rate cuts work fast to help the economy, the effects of the stock market typically lag behind. This time, Mr. Hatzius expects a longer lag. "Normally when you get a big stock market setback, consumers have a harder time getting credit," he said. "But there are more alternative sources of credit for consumers now and the Fed is very eager to keep access to credit good." As a result, consumers are still spending and remain in denial about what the stock market has done to their net worth. Anecdotally, this denial can be seen in the refusal of investors even to open their brokerage and mutual fund account statements. More quantitatively, it is evident in the personal savings rate, which remains at a rock-bottom 3.1 percent. The rate normally rises as household wealth drops. Mr. Hatzius said the current saving rate indicates that consumers are still counting on capital gains to augment what they are socking away in the bank or the mattress. They are not alone; companies that should know better — I.B.M., for example — are assuming 9.5 percent returns in their pension plans this year. Once consumers realize that the stock market will no longer bolster their savings, they will rein in spending and start setting aside more income. That will be a big negative for consumer spending, the only area of the economy that has been strong. Stephen S. Roach, chief economist at Morgan Stanley, believes that further job cuts and softening home prices will force consumers to face reality. "Consumers who are savings-short and overly indebted are going to have to pull back and it's going to be a multiyear retrenchment," he said. Household debt is now at 75 percent of gross domestic product, a record. And debt service as a ratio of disposable income stands at 14 percent, just below the all-time high of 14.3 percent recorded late last year. With consumer debt off the charts, Mr. Roach said he was "pretty appalled" by Mr. Greenspan's recent testimony. "He said that we can keep the consumer afloat by helping him extract equity from his home to finance expenditures," Mr. Roach said. "With the real economic reverberations of the popped equity bubble just starting to sink in, the Fed seems more than willing to risk inflating another bubble in order to temper the distress." Perhaps the housing bubble has helped consumers take the stock market's carnage so stoically. If so, what bubble will emerge to calm them when housing prices fall? Bravo, Gretchen, keep telling it like it is!