Posted on 07/18/2002 11:01:35 PM PDT by Uncle Bill
There Must Be Some Way Out Of Here
THE ECONOMIST
July 18th 2002 | WASHINGTON, DC From The Economist print edition
Americans are losing confidence in the economy. Can George Bush stem the slide?
THESE are not happy times for the White House. Share prices are tumbling, consumer confidence has fallen sharply and George Bush's own approval ratings seem to be heading down. For an administration haunted by the ghost of George Bush senior, whose defeat in 1992 was blamed on a sluggish economy, the parallels are becoming painful, not least because the current president's efforts to reassure Americans are also falling flat.
Mr Bush's trip to Wall Street to preach about corporate ethics was widely derided as too little, too late. This week's follow-up, a hastily-arranged pep talk on the economy in Alabama, proved another embarrassment. “This economy is coming back,” boomed Mr Bush. “That's the fact.” Meanwhile, in one of Wall Street's more dramatic days, stockmarkets slumped (though they recovered somewhat after he finished). It was all too close to Herbert Hoover, who famously proclaimed America's economy to be on a “sound and prosperous basis” in October 1929.
Judging Mr Bush's words by short-term movements in share prices is, of course, neither fair nor useful. The real questions are whether the White House has correctly diagnosed what ails the American economy, and whether its policies are right.
Mr Bush's basic contention is that the fundamentals of the American economy are in good shape. This was also the message of Alan Greenspan, chairman of the Federal Reserve, in congressional testimony the following day. At first blush, they have a point. Inflation is low and productivity growth remains surprisingly robust. Much of the excess investment that firms had built up during the boom has been worked off. Consumer spending remains surprisingly solid. Retail sales, for instance, rose 1.1% in June, far faster than analysts were expecting. The Fed has raised its forecast for economic growth in 2002 to 3.5-3.75%.
Yet despite these apparently good fundamentals, consumers are worried. The University of Michigan's consumer-confidence index fell sharply in July, to levels last seen in November. The main reason, of course, is the stockmarket slide (see article). Over the past two weeks alone the Dow Jones Industrial Average has fallen by 6%. The S&P 500 has dropped to levels not seen since October 1997. The technology-laden Nasdaq index is 72% below its peak in March 2000.
In large measure, this slide is the deflation of the 1990s bubble, a point Mr Bush himself hinted at: “America must get rid of the hangover that we now have as a result of the binge...we just went through,” he said in Alabama. But it has clearly been aggravated by the slew of corporate scandals and the loss of investor confidence.
Sliding equity prices could begin to hurt those fundamentals, promoted so assiduously by Messrs Bush and Greenspan. Household saving, in particular, may be found wanting as Americans re-evaluate what they can expect from their retirement portfolios. That suggests a protracted spell of sluggish, rather than buoyant, consumer spending. Capital investment could also suffer, if firms become more cautious about borrowing.
Unfortunately, there are scant signs that the administration will help counter this. In his Alabama speech, Mr Bush promised an “agenda for long-term growth”. This encompassed: fiscal policy (he wants to make his tax cut permanent, whilst forcing Congress to hold the line on spending); trade policy (he urged Congress to grant him “fast-track” authority to negotiate trade agreements); corporate reform (he touted his new Corporate Fraud Task Force, promised more money for the Securities and Exchange Commission, and urged Congress to send him an accounting-reform bill before August); boosting accountability in schools; and terrorism-risk insurance.
This grab-bag of assorted policies hardly constitutes a post-bubble economic agenda. Even if you thought it did, once you start going through the individual bits, the progress is patchy. For instance, the Senate certainly passed a tough corporate-reform bill on July 15th, and Mr Bush welcomed it. The next day Republicans in the House of Representatives promised to dilute many of the measures in the Senate bill (though they did agree to stiffer sentences for corporate criminals).
Nor do the prospects for trade policy look good. The Bush team has been pushing Congress for fast-track authority for 18 months. Legislation squeaked past the House of Representatives last December and the Senate in May. But reconciling the two bills has been difficult. If Congress does not get round to voting on fast-track by the August recess, the proximity of the mid-term elections in November suggests that the politically sensitive trade bill has little hope.
The biggest and most intractable problems, however, concern fiscal policy. Nobody seems to have absorbed how a post-bubble environment might influence the budget. On July 12th, the Bush administration announced that the federal government would run a deficit of $165 billion this year, compared with an earlier forecast of $106 billion made in February 2002. Although the economy has grown faster than expected since February, tax revenues have plummeted. Much of this revenue drop is due to the stockmarket, as individuals' capital gains have turned into losses. If the bear market lasts, so too will those revenue shortfalls.
In these conditions, Mr Bush's main fiscal policy—that his 2001 tax cuts, ostensibly to be reversed in 2010, should be made permanent—is hard to justify. If demand weakens substantially, there may be a case for more tax cuts (or spending) today. But it is hard to see the fiscal wisdom in making future tax cuts permanent at a time when revenues are so uncertain.
On spending, blame needs to be divided between the White House and Congress. Mr Bush talks tough on spending. He has threatened to veto a $27 billion supplemental budget bill that Congress has larded up to $31 billion. However, by agreeing to far larger, and permanent, expenditures (such as the massive farm bill) Mr Bush has lost the moral high ground. Congress, in turn, is closely divided, and short on any procedural systems for fiscal discipline. Finger-pointing and partisan bickering are far more likely in Washington than the confidence-inspiring policies that America's economy needs.
Copyright © The Economist Newspaper Limited 2002. All rights reserved.
Repeal the 16th amendment and abolish the income tax. Abolish the IRS and take away the citizenship of senior IRS officials and send them to Russia where they'll feel at home. Obliterate federal spending, and start to pay off the national debt in large chunks. Abolish "static scoring" with regards to taxation of any kind. Reinstate and restore the Constitution and Bill of Rights and abolish all laws, treaties, emergency orders and executive orders that have rendered it useless and return to the Constitutional boundaries of our constitutional Republic our founding fathers gave us. Importantly, repeal the Emergency and War Powers Acts. Repeal all laws created by unconstitutional and extraconstitutional devices, such as Executive Order or Presidential Directive. Repeal and abolish all unconstitutional federal involvement in states issues such as: crime, health, education, welfare and the environment, and only God knows how many other intrusions. Social programs such as Social Security, welfare and Medicare must be repealed. So too, do most federal subsidies. Rescind all treaties and International Agreements which are not in perfect agreement with the Constitution. Tell the United Nations to stuff it! The U.S. should disassociate itself from the U.N. and the U.N. should be forced to leave the United States. Destroy all documentation that links the U.S. with the U.N. See Arthur Andersen for details. Alger Hiss, screw you. Furthermore, demand that the federal government refrain from meddling in the business and squabbles of foreign nations, unless there is an imminent threat to the people of the United States. PROTECT OUR BORDERS!! Elect a real small government candidate for President, and the same for Congress. Take memory loss drug to try to forget that most Americans love socialism in about every way and that politicans are simply a reflection of themselves, and, none of the above is going to happen. Now, returning back to reality. Terrorism, shadow government, Stock market crash, federal government crash, Police State, Martial Law, gun-confiscation, FEMA, FBI, CIA, Dictatorship, T.I.P.S., Carnivore, Operation Magic Lantern, Echelon, The Patriot Act, Executive orders too numerous to count, slavery, death, One World Government. It could never happen here. For those of you not just interested in Medicare Part B.
HOW BIG IS THE GOVERNMENT'S DEBT? - $33.1 TRILLION!
Reuters
By Eric Burroughs
August 4, 2002
NEW YORK (Reuters) - Severe stress in global markets has nerve-wracked investors fearful that one big shock could jam the gears of the financial system -- much like the crisis days of 1998.
"People feel like gasoline has been dumped on the floor and it wouldn't take much to ignite it," said James Glassman, senior U.S. economist at J.P. Morgan Chase.
Plunging stocks and multibillion dollar bankruptcies the past month have investors assessing the widespread damage to banks and insurers. If more scandals or failures come to light further straining capital markets, it could force central banks to jump to the rescue, pumping money into the system through lower interest rates.
Fear is starting to hurt economies as well. The financial market squeeze in both the United States and Europe is depriving businesses of crucial capital and sharply increasing their cost of borrowing at a time when global growth, led by the $10 trillion U.S. economy, appears to be losing steam.
"The Fed has to get concerned about the capital markets effectively tightening for the Fed at a time when it wants policy to remain accommodative," said Brad Stone, chief U.S. market strategist at Barclays Capital.
"The Fed may need to lean against that. Some weeks ago that looked like a very low risk. Now it's definitely a real risk," he added.
MONEY HARD TO GET
Interest rates charged on high-quality corporate debt right now stand at near-record levels -- 2.2 percentage points above risk-free Treasuries, up more than half a percentage point since early June.
Investors, scared they cannot trust corporate balance sheets, have proven reluctant to lend money. Corporate bond issuance by investment grade companies sank in July to $22 billion, down 63 percent from its January to June average. Last week investment grade debt suffered its worst week since at least 1997, and junk bonds are set for their worst year ever.
Funding through the short-term commercial paper market also has become very difficult, with total outstanding issuance for nonfinancial and financial firms falling a hefty $93 billion this year. Banks have turned skittish about lending. Initial public offerings have dried up.
"The way the events are unfolding right now for the near term, dealing with these many financial constraints is going to impinge and impinge and impinge on economic activity," said prominent Wall Street economist Henry Kauffman, who has argued the Fed should cut interest rates.
Swap spreads -- a measure of banking sector risk that signaled the systemic distress in 1998 -- popped out last week on the credit anxiety about J.P. Morgan before stabilizing. Investors are even raising risk premiums on assets usually considered very safe like mortgage-backed securities.
With markets so stretched, harried traders are looking anxiously for the one trigger that could set off an explosion.
"The markets continue to scan for a 'smoking gun' to justify some emergency policy response," said Michael Wallace, an economist at Standard & Poor's MMS.
Rattled markets showed their heightened state of anxiety on Friday when rumors of an emergency central bank meeting in Europe to help a failing bank or insurance company swept through trading desks, sparking selling of stocks and powering gains in safe-haven short-term Treasuries.
Banking trouble fears hit a fever pitch on July 24 when rumors spread of liquidity problems at J.P. Morgan Chase -- the largest U.S. bank-- and Citigroup after congressional revelations of their dealings with failed energy trader Enron Corp. The impact across credit markets was harsh and swift.
Later that day ratings agency Standard & Poor's said such talk was unfounded and reaffirmed the ratings of both banks, but investors remain shaken and the damage to market conditions has not improved much.
Europe has also seen its fair share of worries about the quality of its banks and insurance companies on the asset losses, providing fodder for the rumor mill.
On July 25 Germany's second largest bank, HVB Group , posted a second-quarter loss and described business conditions as among the worst since World War II.
'98 REDUX?
Economists are quick to point to the differences between this episode and the late summer of 1998, when Russia's debt default sent investors rushing out of risky assets globally and nearly brought the financial system to its knees when the hedge fund Long-Term Capital Management almost collapsed.
Conditions were so bad then that even the massive U.S. government bond market -- considered the most liquid in the world and a refuge from turmoil -- nearly froze as dealers demanded higher and higher premiums to execute trades.
Eventually the Fed cut rates to restore investor confidence, even though the economy was in good shape.
The current pain in capital markets has yet to reach those extreme levels of distress, said J.P. Morgan's Glassman. But he said the market sees conditions as deteriorating to the point where a crisis could happen "at any moment."
JP Morgan Fails to Report $45 Billion in Gold Derivatives to the SEC
Wall Street Falls for Third-Straight Session
Signs suggest stocks could drop more
GLOBAL MARKETS-Stocks suffer as economic outlook sours
Treasury yields plumb record lows as stocks dive
Dow hammered as financial, telecom issues tumble
U.S. stocks sag after latest dim economic data
Australian stocks seen hit as U.S. economy slows
IMF Sees Gloomier Economic Outlook
IMF says risks facing the U.S. economy have intensified
Airline sector tanks, sits 20% under post-Sept.11 low
Cisco slumps on Lehman downgrade
Scowcroft Warns invading Iraq would cause an 'explosion' in Middle East
Pushing South America Toward Default
Stocks Plummet on Renewed Fears of Recession
Stocks tumble, Dow drops triple-digits again
Fears of double dip blast markets
Wall Street Takes Another Dive
"On the Dow, financial services giants J.P. Morgan Chase and Citigroup led the decline, falling 6.3 percent to $22.34 and 7.2 percent to $28.65, respectively."
Taiwan's Market Falls as Ties With Beijing Worsen
Brazil Teeters. Will It Be Contagious?
Will Argentine flu sicken Latin America?
Report Deepens Stocks' Slump - Service Sector Slows
IMF Sees Gloomier Economic Outlook
HSBC Raises Loan Reserves as 6-Month Profit Falls 7%
Swiss Shares Dip on Worry About Financier
Market Place: Shares Plunge as Ad Agency Delays Report on Earnings
Mirant Says It Is Subject of Inquiry by S.E.C.
Global market stress weighs on the US economy
US stocks slump, dragged by fears of soft economy
Economy Stirs G.O.P. Worry in House Races
Collins & Aikman Shares Fall After Second-Quarter Loss
You're working on it (affectionately, It is almost too late).
The New Improved Game of Insider Trading
Corporate debt saps nation - Credit stress hits Depression level
"Moody's Investor Research now says the nation is in the worst credit stress since the Great Depression of the 1930s."
Nigeria just defaulted on $33 Billion debt! - Who will pay? You.
Bailouts for everybody. Uh, well, except you. Sorry. Somebody has to pay.
Washington spending going wild
Bush Spending Exceeds Anything Known To Man
George W. - Master of Disguise
In an effort to boost the economy, socialist George W. thinks the "Government ought to have a policy that helps people with a downpayment." This is not a joke, he really stated it.
Socialism: the Forbidden Ideology
HOW CONSERVATIVE IS PRESIDENT BUSH?
GEORGE W. BUSH: CLINTON'S THIRD TERM © - Norman Liebmann
Please, make this all go away
Fiscal conservatives’ in Congress help keep spending on the rise
"Congress passed the Federal Reserve Act on the 22nd of December 1913, and from that day forward the United States of America ceased to be a republic."
Anne Williamson - THE FED, March 2001, WorldNet, a monthly publication of WorldnetDaily.com.
Central Bankers Meet to Assess Anti-Recession Efforts
The Associated Press
By Joseph Rebello August 29, 2002
Source
JACKSON HOLE, Wyo. (Dow Jones/AP) - The world's best-known economists and central bankers are meeting here this weekend to try to decide a question Wall Street resolved long ago: Who is best equipped to fight recessions - elected government officials or central bankers?
Investors are paying attention anyway, hoping that the predictably academic tone of the annual economic conference of the Federal Reserve Bank of Kansas City will not keep Alan Greenspan from shedding light on a more urgent question: Does the Fed need to do more to fight the current U.S. economic downturn?
The U.S. economy, after all, remains sickly despite the unprecedented dose of stimulus it got last year in the form of tax cuts enacted by Congress and interest-rate cuts executed by the Fed. Consumer confidence is wobbly and business investment is tepid. The Fed hinted two weeks ago that it might cut interest rates again, but more recent comments by some Fed policy makers have puzzled investors.
"Alan Greenspan knows what people are interested in," said James Glassman, an economist with J.P. Morgan in New York. "If he chooses to signal anything, he can do so in a few words at this conference. The markets just want to know what the Fed's frame of mind is - what would it take for the Fed to act again" to boost the economy.
Greenspan, who enjoys superstar status among the central bankers gathering in Jackson Hole, is scheduled to deliver a speech at 10 a.m. EDT Friday that kicks off the two-day meeting. He traditionally confines his remarks to the main topic of the conference. But analysts say the topic this time - "Rethinking Stabilization Policy" - is broad enough to give him an opportunity to clarify Wall Street's doubts about the Fed's intentions.
Those doubts grew last week after three Federal Reserve regional bank presidents suggested the Fed should not cut interest rates again despite the central bank's view that the chief risk facing the economy is of a renewed slowdown. Chicago Fed president Michael Moskow said the Fed "cannot - and should not - try to smooth out every bump" in the economy. Investors' expectations of another rate cut this year receded as a result.
The conference also will provide a platform to central bankers from other leading industrial economies to shed light on the outlook for those economies. The deputy governor of Japan's central bank, Yutaka Yamaguchi, is scheduled to make a presentation on monetary policy and economic conditions in his country. He also is likely to hear from other economists on what the Japanese must do to end the country's decade-long recession.
Ottmar Issing, a member of the European Central Bank's executive board, is set to discuss the ECB's efforts. And Guillermo Ortiz Martinez, governor of Mexico's central bank, is scheduled to describe the Mexican experience.
The central bankers, however, typically spend most of their time listening to presentations by top academic economists. Those economists, according to participants in the meeting, are expected to argue that governments are generally ineffective when they try to fend off recessions by cutting taxes or increasing spending. The job of fighting recessions should be left instead to central banks.
That isn't a novel idea. Many Wall Street economists agree that legislatures typically take too long to organize a fiscal stimulus, which means the economy gets that stimulus when it is no longer needed. Still, those economists also say, the U.S. tax cuts last year show that governments can be effective if they manage to act quickly.
"We ended up with a milder recession than we would have had" if tax cuts had not been enacted, said David Jones, an expert on the Fed. "At least this time the timing was much better."
HOW BIG IS THE GOVERNMENT'S DEBT? - 33.1 Trillion - By Andrew J. Rettenmaier, a NCPA senior fellow and the executive associate director of the Private Enterprise Research Center at Texas A&M University.
The Fall of the Republic
My only question is, will the '90s be called the Clinton Bubble?
Stocks Suffer Biggest Fall Since Sept. 11
Stocks Continue Tailspin Amid Uncertainty Over Economy
U.S. Stocks Tumble; S&P 500 Has Biggest Loss Since Sept. 17
Tokyo's Nikkei hits 18-year low, sentiment "awful"
Consolidated Freightways Files For Bankruptcy - Mexican Truckers Lick Chops
Market WrapUp - Tuesday September 3, 2002Why the Gold Cartel Will Fail to Prevent a Primary Gold Bull Market
Another large bankruptcy, this one in the trucking industry. Conolidated Freightways goes belly up
IBM Plans Layoffs in PWC Deal, Report Sees 4,000
Stocks rocked in September debut
Citigroup shares routed on risk fears
US stocks slide on "global economy" fears
The WTO Kibosh on a U.S. Tax Break
Bush Pledges to Help Workers Through Recession - Feels Their Pain
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