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

To: stockman_scott who wrote (4939)	8/21/2002 9:25:27 AM
From: Jim Willie CB	Read Replies (1) \| Respond to of 89467

some perspectives from Jim Grant (IntRateObsvr) and others (taken from the Daily Reckoning) - "Never in the post-World War II period has the stock market been this weak during this stage of the business cycle," marvels William Dudley, Goldman Sachs's chief economist. Normally, stocks rally nicely when coming out of a recession. But plainly, that's not happening this time. - What's more, there appears to be a whiff of debt deflation in the air..."From April through June, 56 companies defaulted on $52.1 billion of rated debt, a new quarterly peak (the runner-up was the $36.9 billion of debt gone bad in the first quarter of 2001)," Jim Grant observes. "In the bubble, prospective borrowers were approved after submitting a valid government-issued ID card." - American households are in no better financial shape than American corporations. "Household debt as a percentage of GDP is way up," Ned Davis observes. "Debt has continued to skyrocket during this bear market...The debt is still here but the collateral's gone." - Jim Grant explains: "[The bubble] has distorted values and the perceptions of value. It has induced conservative people to take risks they wouldn't have dreamt of taking a decade ago and less conservative people to play with fire. On a macroeconomic level, it helped to foster record-high borrowing, in relation to GDP, by households and businesses." - In the wake of this reckless borrowing, the New Era of rising productivity and prosperity that Greenspan tirelessly promoted has turned out to be nothing but a chimera - an expensive self-delusion. - We're in a new era, alright, says Paul Kasriel, economist at Northern Trust. "But not the one George Gilder and his merry followers had in mind. No, the new era we are in is the one of declining household net worth." And that is a new, new thing indeed. - "From 1953 through 1999," Kasriel explains, "there never was an instance when household net worth declined year-end to year-end. [But] now, we have two consecutive years of declining net worth, and we're on track for a third year." Is there any reason to doubt that this reverse wealth effect - coupled with a rediscovered urge to save - will take a big bite of consumption, which in turn will take a big bite out of economic growth? - "Now that the ratio of net worth to income is falling from the stratosphere," Kasriel continues, "the personal saving rate is starting to rise. After averaging 2.3% in 2001, the saving rate rose to 4.2% in June of this year...We think that over the next several years, the saving rate is going to levitate toward this long-run average of 8.7%." - Clearly, any significant increase in the savings rate - however laudable - will have dire near-term implications for economic growth. - We anticipate a long slog out of the post-bubble era," writes Grant. "A grim business, it will sooner or later be enlivened by the confessions of Alan Greenspan. If only because the truth will become too glaringly obvious to ignore, he will have to try to explain what happened to the New Economy and to 'structural' productivity growth...Confronted with his costly misapprehensions from the bubble era, he will have to admit that it might be better for all concerned if he left his post and devoted his time to touring the British Empire, wherever it is. "It may be that Alan Greenspan's professional inflection point will have something to do with the gold price... The bet of the gold bulls is that faith in Alan Greenspan, and in the currency he manages, is on the wane. Who comes after him? A central banker not imputed to possess the magical powers of divining the optimum funds rate and imposing that rate on the world. Greenspan does not now possess that capacity and never did. No one does or did." - Mr. Gold Market, are you listening?