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To: SE who wrote (13231)	1/20/1999 1:36:00 PM
From: Chip McVickar	Read Replies (1) \| Respond to of 44573

Scott, Good move on that stop We are still at that middle tine off 1/13 But this is taking longer then expected Greenspan if you missed him High Stock Prices Worry Greenspan By MARTIN CRUTSINGER .c The Associated Press WASHINGTON (AP) -- While calling the economy's current performance ''outstanding,'' Federal Reserve Chairman Alan Greenspan expressed worries today that the high-flying stock market could be headed for a tumble that could spell serious trouble down the road. Greenspan also criticized a key part of President Clinton's Social Security rescue plan, saying the government could damage the economy by investing huge sums of money in the stock market. None of Greenspan's comments today suggested to analysts that the Fed would be changing interest rates any time soon. But his expressions of concern about the altitude of the stock market gave support to views that the central bank is unlikely to rush to cut rates further unless global turmoil sends markets into a severe downturn such as occurred last fall. At midday, the Dow Jones average was up 75 points. Greenspan, an influential voice Congress often turns to on economic matters, said he supports Clinton's major idea to put 62 percent of the government's budget surpluses into Social Security's cash reserves. But he expressed serious reservations about a part of Clinton's plan that would allow a government board to direct about a quarter of those savings into stock market investments. It is unlikely that these investments could be insulated from political considerations, he said. Rather, Greenspan said it is more important to use budget surpluses to reduce the federal debt as a way of boosting the national savings rate. The government's channeling trillions of dollars over the years into U.S. companies would eventually lower America's productivity rates, the key to rising standards of living, because of pressures to help less efficient industries rather than letting market forces decide what companies to fund, Greenspan said. ''I do not believe that it is politically feasible to insulate such huge funds from government direction,'' Greenspan told the House Ways and Means Committee. ''I am fearful that we would use those assets in a way that would create a lower rate of return for social Security recipients and even greater concern it would create sub-optimal use of capital and a lower standard of living.'' Greenspan's remarks today on the level of the stock market were his most extensive worrying aloud about whether prices had risen too high since his famous comments about ''irrational exuberance'' in December 1996, when the Dow Jones industrial average was nearly 3,000 points lower than it is today. Greenspan noted that stocks have been climbing into record territory this year and called this fact unusual, given that corporate profits, the underpinning of stock prices, have been weaker. He said this weakness in profits raised the ''possibility that the recent performance of the equity markets will have difficulty in being sustained. The level of equity prices would appear to envision substantially greater growth of profits than has been experienced of late.'' Greenspan said a tumble in stock prices could quickly over into the real economy through what economists call the ''wealth effect,'' the fact that consumers spend more when their net worth is rising and cut back when they face reversals. It has been robust consumer spending that in large part has kept the U.S. economy steaming ahead in the face of the severe global turmoil that began in Asia in mid-1977. ''A decline in equity (stock) values, especially a severe one, could lead to a considerable weakening of consumer demand,'' Greenspan said. Greenspan stressed today that the Fed's actions last year were not prompted by a desire to protect investors from a drop in stock prices, but rather to protect the overall economy from a downturn caused by a cut in consumer spending that could result from tumbling markets. In fact, Greenspan said some slowing in the U.S. economy this year would be desirable, given the rapid pace of recent growth that has pushed the nation's unemployment rate to a three-decade low. The global economic crisis threatened to flare anew last week when Brazil, the largest economy in Latin America, was forced to devalue its currency. ''So far, markets seem to have reacted reasonably well to the decisions by the Brazilian authorities to float their currency and redouble efforts at fiscal discipline,'' Greenspan said. Most economists are looking for growth to slow markedly in 1999 as the drag from foreign turmoil finally begins to bite. But the slowdown has yet to occur and for that reason, economists don't believe the Fed will move anytime soon to cut rates. AP-NY-01-20-99 1235EST