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To: Lucretius who wrote (223996)	2/26/2003 9:24:12 AM
From: MythMan	Read Replies (2) \| Respond to of 436258

this is UFB... >>Golden Years? By LAWRENCE KUDLOW The pending war in Iraq has put an uncertainty premium on virtually all forms of investment. But it's not Iraq that holds the key to our economic future. It's Alan Greenspan and the Federal Reserve. The fog of war should not obscure the fact that the Fed's money policy is critical to economic recovery. Deflation has been the major obstacle to economic and stock-market recovery. Falling prices from a shortage of money have robbed businesses of the pricing power they need to generate profits. But today it looks like the Fed's monetary policy has truly shifted from deflationary to reflationary, and that America's corporations will soon be in the money again. If so, there is good reason for investors to flock back to Wall Street. One key barometer of monetary policy is the movement of commodity prices, including gold. When gold descended in price between early 1997 and mid-2001, it signaled that the Fed was getting tighter with the cash. For much of the time, the Greenspan Fed was actually raising the federal funds interest rate -- even while gold was dropping. This was the Fed at its deflationary worst. Meanwhile, businesses and the economy -- thirsty for money -- began drying up. In 2001 the Fed lowered its target interest rate 11 times in an attempt to reflate the economy. But these rate cuts merely made up for lost time. It took until July 2002 for a rising gold price to indicate that Fed money-supplying was beginning to satisfy private-sector cash demands, and until November last year for gold to finally signal a true position of monetary ease. The uncertainties of war could take the stock market below its October 2002 bottom. But the fact that the Fed is indeed easing suggests that we've seen the worst. The question is, will the money keep flowing? More than likely, Fed policy will stay easy until the economy produces stronger growth and lower unemployment. This probably means the Fed will hold its target interest rate at 1% for the remainder of the year. Such steadiness will be a plus for stocks. But that doesn't mean Fed policy is on target. In the late 1990s, Mr. Greenspan obsessed about stock-market prices and irrational exuberance. He ignored gold and commodity indicators -- which said to keep the money coming -- and we slipped into prolonged deflation. As share prices plummeted, business wealth deflated, causing a lengthy contraction of business investment, production, and jobs. It could happen again. If Mr. Greenspan once more limits stock-market wealth and economic growth, we could see a repeat of the tight policy actions that failed so miserably only a few years ago. However, if he targets sensitive commodity prices, including gold, stocks and the economy will be the long-run winners. President Bush has proposed a powerful pro-investment and pro-growth tax-cut package. If enacted, his investment-tax incentives will help the economy grow faster than the 3% to 4% rate of productivity. Unemployment will drop. But the Bush plan requires a steady flow of new cash for true firepower. Simply put, more money will be needed to finance the creation of more goods. If the Fed frets about a rising stock market or economy, they will not properly accommodate the Bush tax plan. But if they watch gold and commodity prices, they'll stay right on target. Greenspan & Co. should also take another look at the Fed's job description. The Federal Reserve is in place to determine the appropriate rate of money creation. Nowhere does it say they have authority over fiscal policy. Yet while Mr. Greenspan favors ending the double taxation of corporate dividends, he is highly skeptical of the need for other growth-oriented tax cuts. This is just what he said after 9/11, and he was wrong. The economy has since been moving at a subpar pace precisely because stimulative tax cuts were not put into action. The person who has had the story right over the past two years is President Bush's top economist, Glenn Hubbard -- the man behind the big-bang stimulus package. When Mr. Greenspan's fourth term comes to a close next year, doesn't Mr. Hubbard deserve consideration for the post? Meanwhile, someone from the Republican-controlled White House, Treasury, Senate, or House should be raising the monetary issue. Although you'd never know it, Congress does in fact have supervisory authority over the central bank. Now's the time to use it. The ability of the U.S. economy to mount another 10-year boom, one that will greatly enhance American prestige abroad as well as prosperity at home, will depend on the Fed targeting real-time price indicators like commodities and gold, and keeping the money spigots open. Washington must get Alan Greenspan on board with growth.<<