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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: ahhaha who wrote (4972)	7/24/2002 12:48:25 PM
From: ahhaha	Read Replies (1) \| Respond to of 24758

INTERVIEW-Fed ought to cut rates soon--economist Kaufman By Ellen Freilich NEW YORK, July 24 (Reuters) - The Federal Reserve should consider cutting interest rates soon to cushion the impact of negative financial market developments on the economy, prominent Wall Street economist Henry Kaufman said on Wednesday. "The Federal Reserve should be considering lowering interest rates soon," Kaufman said. "The Federal Reserve should lower margin requirements on stocks. The administration should propose a reduction of the capital gains tax, corporate tax and some modest reduction in individual taxes in order to cushion this down-drag from the financial side," he said. Corporations are facing difficulties raising money, Kaufman said, and the way developments in financial markets are unfolding right now, chances are close to 50 percent that the economy will experience a double dip, revisiting the recessionary environment it encountered in 2001. ... But he said liquidity has been "significantly constrained" for corporations. "The high-yield market is virtually closed," Kaufman said. "The IPO market is pretty well closed. Commercial paper outstanding is contracting and is being paid off by forcing issuers into the banking system. Banks generally are becoming cautious in the extension of credit and market makers are holding down their position taking," he said. "Dealing with these many financial constraints is going to impinge and impinge and impinge on economic activity," Kaufman said. Conceding that his is now a minority view, Kaufman said the majority of private economists as well as the Federal Reserve and the administration take an "extraordinarily bifurcated" view of the relationship between the financial markets and the economy. A majority point to the rise in industrial production, the good level of housing activity, the good level of consumer spending, and low inflation and call the economy "fundamentally sound," he said. But Kaufman said this view fails to take into account the "significant contractionary force that is bearing down on the economy from the bad financial developments. "The mind-set of the monetary authorities and of the administration is not focused on how to deal with these financial contractionary forces," he said. "The view is that everything will be all right, that the so-called fundamental strength of the economy will prevail," Kaufman said. "My view is that it can't, and that there are no policy initiatives there to deal with this overwhelming negative force coming from the financial side." Kaufman said financial markets are currently flushing out into the open "many of the excesses of the last decade or so." Those excesses, he said, involved the shortsightedness of corporate chief executive officers and the failure of many boards of directors to really exercise their authority. "It involved the biased views of Wall Street analysts and the unwillingness of the supervisory authorities to really deal with the excesses that have been fomenting for some time," Kaufman said. "It involves lending institutions not performing adequate due diligence. That's the backdrop all contributing to this problem." Leadership from President Bush can overcome Henry's concern.