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OfflineI_Fart_Blue
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Greenspan's gloom
    #1509746 - 05/01/03 01:30 AM (13 years, 7 months ago)

Greenspan's gloom

Apr 30th 2003
From The Economist Global Agenda


America's economic prospects remain in doubt, Alan Greenspan tells Congress. The Federal Reserve chairman drew attention to lingering business caution and hinted that he is worried about the dangers of deflation





WITH the war in Iraq over, Alan Greenspan, chairman of the Federal Reserve-America's central bank-made an unusual appearance before Congress on April 30th. Though the ostensible reason for his visit to Capitol Hill was simply to be quizzed by congressmen on the fine details of his latest monetary-policy report, the Fed chairman used his appearance to deliver a public assessment of the post-war economic outlook, just six days before the Federal Reserve meets to decide what, if anything, to do about interest rates.

Unfortunately, Mr Greenspan seemed unable to offer the sort of upbeat message many (no doubt including the occupants of the White House) had been looking for. For months before the military action started, Mr Greenspan had put much of the blame for the economy's sluggish performance on geopolitical uncertainty. So some observers will have been disappointed, therefore, by Mr Greenspan's continuing caution. Indeed, the tone of his testimony was remarkably downbeat.

The Fed chairman noted that there is, as yet, only limited evidence about the state of the economy now that the war is over-and that what there is remains mixed. Households, he said, are "less apprehensive" about the economic outlook: but that hardly suggests a rush back to the shopping malls, and Mr Greenspan acknowledged that the increase in consumer demand has so far been "tepid". He certainly did not make much of the rebound in consumer confidence reported by The Conference Board, a private research body, on April 29th.

It seems clear that what really troubles the Fed chairman are the persistent weakness in business confidence and what that implies for business investment. Right from the onset of recession in 2001, Mr Greenspan has consistently argued that a solid and accelerating economic recovery would ultimately depend on a pick-up in business investment. In this respect, there was a small gleam of hope in his latest assessment, the thrust of which was that at least most of the preconditions for such an upturn are now in place. The oil price has fallen back, share prices are up from their mid-March lows, improved profitability is in prospect for many companies and order books are growing.

Many economists criticised the Fed for the decision it made at its March meeting not to offer a judgment on the likely balance of future economic risks. This "bias"; judgment is usually followed almost as closely as interest-rate changes themselves: knowing whether the Fed thinks the main risk is from inflation or from further economic weakness, or if the risks are equally balanced, provides Fed-watchers with clues as to the likely future movement in interest rates. But at the March meeting, the Fed, in effect, threw up its hands and admitted it had no idea what the balance of risks was. Mr Greenspan sought to defend this unusual decision in his latest testimony, and said that the Fed had, as a result, stepped up its detailed surveillance of economic developments.

Yet it seems that the Fed chairman remains troubled by the extent of the uncertainty surrounding the economic outlook. And he gave his most candid assessment yet of the dangers of deflation. With inflation so low, Mr Greenspan said, "substantial further disinflation would be an unwelcome development". The language was coded, but the import of his words seems clear. Mr Greenspan is concerned that any further fall in the inflation rate could bring the risk of deflation that much nearer. Even for inflation to approach zero would, in the chairman's view, risk undermining profit margins and delay an upturn in business investment—on which the prospects for a broader, sustained economic recovery depend.

Central bankers normally get very nervous when people start to talk about deflation. They do not like to suggest it is a serious risk, lest that influences behaviour and depresses confidence and spending (because people start to hold off purchases in the expectation of a fall in prices). Instead, they prefer to reassure people that they are alert to the dangers and are prepared to respond to the threat in good time. One of Mr Greenspan's Fed colleagues, Ben Bernanke, gave a lengthy and detailed speech saying just that, last November. For Mr Greenspan to address the subject so directly suggests the extent of his current concern.

Timing is all, of course, and it is not just Mr Greenspan who is hoping that a clearer international picture in the coming weeks will be accompanied by a clearer and more favourable economic outlook. President George Bush recently indicated that he was minded to nominate the 77-year-old Mr Greenspan for a fifth term as Fed chairman when his present stint expires next year; Mr Greenspan promptly made it clear he would accept. By then, the American economy could once again be displaying its more customary buoyancy. For now, though, it looks as if Mr Greenspan is in for a bumpy ride.


Source


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"A study of the history of opinion is a necessary preliminary to the emancipation of the mind. I do not know which makes a man more conservative-to know nothing but the present, or nothing but the past." -John Maynard Keynes


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OfflineSkikid16
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Re: Greenspan's gloom [Re: I_Fart_Blue]
    #1509859 - 05/01/03 02:11 AM (13 years, 7 months ago)

Well hell, if this slump keeps up maybe W won't get to spend another 4 years fucking....er serving our country.


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Re-Defeat Bush in '04


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Anonymous

Re: Greenspan's gloom [Re: Skikid16]
    #1509864 - 05/01/03 02:12 AM (13 years, 7 months ago)

that's what i'm thinking. hopefully he will share the fate of his father.


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OfflineI_Fart_Blue
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Re: Greenspan's gloom [Re: ]
    #1509877 - 05/01/03 02:19 AM (13 years, 7 months ago)

"It's the economy, stupid."


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"A study of the history of opinion is a necessary preliminary to the emancipation of the mind. I do not know which makes a man more conservative-to know nothing but the present, or nothing but the past." -John Maynard Keynes


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OfflineMadtowntripper
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Re: Greenspan's gloom [Re: I_Fart_Blue]
    #1510776 - 05/01/03 11:01 AM (13 years, 7 months ago)

I'd like to know, if the economy is fuckee-fucked,which it is, how come they dont fire Greenspan? Is he considered infallible? Or cant he be fired? I really know barely anything about the Fed Reserve...


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After one comes, through contact with it's administrators, no longer to cherish greatly the law as a remedy in abuses, then the bottle becomes a sovereign means of direct action.  If you cannot throw it at least you can always drink out of it.  - Ernest Hemingway

If it is life that you feel you are missing I can tell you where to find it.  In the law courts, in business, in government.  There is nothing occurring in the streets. Nothing but a dumbshow composed of the helpless and the impotent.    -Cormac MacCarthy

He who learns must suffer. And even in our sleep pain that cannot forget falls drop by drop upon the heart, and in our own despair, against our will, comes wisdom to us by the awful grace of God.  - Aeschylus


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OfflineI_Fart_Blue
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Re: Greenspan's gloom [Re: Madtowntripper]
    #1511111 - 05/01/03 12:59 PM (13 years, 7 months ago)

Well, I don't think the economy is completely screwed, but there are some issues which raise some concern. There are a number of reasons why Greenspan hasn't been let go, the least of which is he has done a damn good job as Fed Chairman. There are certainly some political issues involved as well, and I think firing him now would probably have an adverse affect on the markets. Investor confidense is shakey enough as it is. I'm not sure about being able to fire him though, but Bush appointed (if thats the right word) him to another term a few weeks ago, so we've got him for anothe 4 years I think.


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"A study of the history of opinion is a necessary preliminary to the emancipation of the mind. I do not know which makes a man more conservative-to know nothing but the present, or nothing but the past." -John Maynard Keynes


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OfflineMadtowntripper
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Re: Greenspan's gloom [Re: I_Fart_Blue]
    #1511144 - 05/01/03 01:14 PM (13 years, 7 months ago)

Hmmm. Alright, thanks for the primer. Just one of those things I've never really thought about before....


--------------------
After one comes, through contact with it's administrators, no longer to cherish greatly the law as a remedy in abuses, then the bottle becomes a sovereign means of direct action.  If you cannot throw it at least you can always drink out of it.  - Ernest Hemingway

If it is life that you feel you are missing I can tell you where to find it.  In the law courts, in business, in government.  There is nothing occurring in the streets. Nothing but a dumbshow composed of the helpless and the impotent.    -Cormac MacCarthy

He who learns must suffer. And even in our sleep pain that cannot forget falls drop by drop upon the heart, and in our own despair, against our will, comes wisdom to us by the awful grace of God.  - Aeschylus


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