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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (4656)	8/16/2002 11:13:16 AM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

seattlepi.nwsource.com

To: TigerPaw who wrote (4656)	8/16/2002 11:55:33 AM
From: stockman_scott	Respond to of 89467

The Fog of War Talk By Christopher Farrell contributing economics editor BusinessWeek AUGUST 16, 2002 As if the crisis of confidence in Corporate America wasn't enough, the Administration's saber rattling is adding to the economy's uncertainty ____________________________________________ A pall is settling over the economy. The long bear market and the nearly $7 trillion in vaporized stock market wealth risks undermining the recovery's foundation. The manufacturing sector is losing its zip, and companies are cutting back on worker hours. Chief executives, under fire for accounting shenanigans and now working overtime to comply with new regulations, are hardly in an expansionary mood. Investors are spooked, with stocks down over 40% since the bear market started in early 2000 and Treasury bond yields at their lowest level since the 1960s. In a telling sign of the times, the PIMCO Total Return Fund, a premier-bond mutual fund, recently surpassed in size Fidelity's legendary Magellan Fund, the giant equity mutual fund. A number of Wall Street economists, including stellar graduates of the dismal science at Goldman Sachs and Morgan Stanley, have recently cut back their growth estimates for the year. Still, Alan Greenspan and his colleagues at the Federal Reserve Board decided to stay the course. GREENSPAN'S GAMBLE. The Fed left its benchmark interest rate unchanged, although the central bankers acknowledged the risk of further economic weakness. The oddsmakers at the Fed are betting that consumers will remain the economy's stalwart supporters. With incomes climbing higher and retail prices spiraling lower, consumer spending is brisk on everything from homes to travel to gadgets. Business productivity growth is strong, too, and corporate profits are on the rebound. A majority of economists in the most recent National Association of Business Economists survey say they don't believe the economy will fall back into the oft dreaded but rarely seen "double-dip" recession. It's a judicious gamble for the Fed to take. For one thing, caution is a reasonable strategy in view of how often the manic moods on Wall Street drive values and opinions to extremes. For another, America's lender-of-last-resort is smart to keep its options open, given the "substantial threat" of a financial panic, says Mark Zandi, chief economist at Economy.com, an economic consulting firm. There may be an even more compelling reason for the Fed to keep its monetary powder dry: the prospect of war with Iraq. MARTIAL JITTERS. The Bush Administration's saber-rattling against Saddam Hussein is unsettling investors -- and rightly so. The Administration has repeatedly vowed to remove the ghastly dictator from power. Government officials and military insiders are regularly leaking to the media various battle plans for toppling Saddam's regime. The U.S. government openly met with exiled Iraqi leaders to start sketching what a post-liberation Iraq might look like. Of late, the Administration has been saying that nothing has been decided. That's probably true, yet much of official Washington acts as if the only question is when to strike Iraq, not whether to launch an attack. Says Walter Russell Meade, senior fellow for U.S. foreign policy at the Council of Foreign Relations: "The negative impact comes while we are waiting for war. There is all this uncertainty that makes markets nervous, investors nervous, and oil markets jittery." Most commentators still blame the corporate-accounting scandal for the stock market's current malaise. But it is increasingly hard to believe that investors aren't starting to look past CEO impropriety during the boom years of the late 1990s. It seems that almost every day another Wall Street firm issues a thick research report taking into detailed account the impact of stock-option expensing on corporate earnings or translating a financial statement according to Generally Accepted Accounting Principles into tougher "quality" accounting standards. IRAQ AND RUIN? Washington has embarked on a flurry of regulatory initiatives. Federal prosecutors are indicting corporate chieftains. The exchanges are beefing up their governance rules. What's more, the outcome of the scandals was always pretty clear: a series of reforms designed to increase financial transparency and CEO responsibility. The questions raised by war against Iraq are far murkier. Take this list of uncertainties compiled by David Hale, global chief economist for the Zurich Group: "Will the oil price rise sharply because of the risk of supply interruptions in the Persian Gulf? Will an attack on Iraq produce an upsurge of anti-Americanism and revolutionary ferment in Saudi Arabia and other Arab countries? Will Iraq use weapons of mass destruction against Israel and compel her military to become directly involved in the war? Will the U.S. be able to produce a viable new political regime in Baghdad, or will Iraq fragment into new ethnically defined territories creating a regional balance-of-power vacuum in favor of Iran?" In the short run, war would probably hammer an already fragile economy. It is likely oil prices would spike sharply higher. Consumers would delay spending on big-ticket items such as homes and cars. Business would hold off on any major plant and equipment investments. Travel plans would be cancelled. International trade flows would slow. SHADOW PLAY. War isn't always bad for the economy, especially with time. Military spending on bullets, tanks, high-tech weaponry, and other goods and services can boost gross domestic product (GDP). The change to a pro-West Iraqi government could also bring down oil prices over the long haul. "We're already on a path of military Keynesianism," says Meade. "We don't let a budget deficit get in the way of a defense buildup, and that's likely to be stimulative to the economy." The risk of another recession is not enough reason to steer clear of any war that really needs to be fought. But the Administration has yet to make a convincing case to the American public and allies that there is no alternative to military action. The President could have used the meaningless economic summit in Waco to touch on the topic, but sadly let the opportunity pass. Meanwhile, until the outcome of the shadow war being fought with Saddam Hussein is clear, every household and business should factor in the risk of an actual military invasion when making plans. ________________________________________ Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online

To: TigerPaw who wrote (4656)	8/16/2002 12:45:32 PM
From: stockman_scott	Respond to of 89467

Will Iraq Be an Afghanistan -- or another Bay of Pigs? 15 August 2002 stratfor.com

To: TigerPaw who wrote (4656)	8/16/2002 1:33:06 PM
From: stockman_scott	Respond to of 89467

Some Letters to The Editor of The Los Angeles Times... August 16, 2002 LETTERS TO THE EDITOR Bush's Economic Forum Needed FDR, Not Hoover Re "A Void in Fiscal Leadership," editorial, Aug. 14: The views expressed at President Bush's Waco economic summit were similar to those of Herbert Hoover. What we need is leadership like Franklin D. Roosevelt's. Instead of tax cuts, we need economic stimulus in the form of improvement of infrastructure, which would put people to work and encourage manufacturers to invest. Tax cuts do little to boost the economy when interest rates are below 2%. The fear of deficits has to be addressed; a repeal of the tax cuts and added taxes on the affluent can address that. B. V. Bhimani Winnetka * A bunch of corporate bigwigs fly across the country for a half-day meeting, a fancy lunch and a photo op. They lobby a tax cut for themselves, return home with no action plan but proclaim the economy saved, then expense the trip to the shareholders. This was nothing but a corporate boondoggle. The only thing missing was the golf game. Jeff Bucher Arroyo Grande latimes.com