Posted on 12/15/2001 7:10:53 AM PST by churchillbuff
ALAN IS LOWERING INTEREST RATES LIKE THERE'S NO TOMORROW - - - I THEREFORE ASK, WHY DID HE HAVE TO RAISE INTEREST RATES SO HIGH TO BEGIN WITH- ISN'T THAT WHY WE'RE IN THE FIX WE'RE IN, with stocks 30 percent or more below the beginning of 2000? Thanks, Alan.
Here's Kudlow's take:
A Roadmap for Recovery
This is Greenspan's recession. Here’s what to do.
Mr. Kudlow is CEO of Kudlow & Co. November 1 , 2001 12:45 p.m.
Make no mistake about it, the 0.4% decline in third-quarter gross domestic product had virtually nothing to do with the September 11 terrorist bombings and virtually everything to do with massive monetary mistakes made by the Federal Reserve over the past two years.
Blame for this downturn must be placed squarely at the doorstep of the central bank. President Bush is right to say that the terrorist attacks "affected our workforce and our business base," and the economic aftershock of 9/11 would by itself have caused a temporary fourth-quarter contraction of about 1% of GDP. But the third-quarter drop — which probably will be backdated to a recession that began last winter — could have been avoided were it not for massive monetary mistakes.
In the first place, nobody told the Federal Reserve to ratchet up its basic money supply by 17% in 1999, and then deflate it by 3% in 2000. This was a pillar-to-post policy gyration and it was sheer lunacy. A massive money excess followed by a huge money shortage caused national income to careen upward unsustainably and then spiral downward later. This was the root cause of the recession.
The Fed chairman's reputation was supposedly that of a cautious incrementalist. Instead, Alan Greenspan gave us unprecedented monetary volatility. No wonder the economy spun out of control. .....Well, the recession-creators have in fact pumped $40 billion of new cash into the economy since the 9/11 terrorist bombings. Year-to-date, the Fed's basic money supply has now grown by 8.5%, a considerable improvement from last year's 3% decline rate. These are moves in the right direction. And if tax policy falls in line, we may soon bury this private-sector recession. But that's if it falls in line.
It is important to understand that at the very heart of this slump is the downturn in business. While class warriors on Capitol Hill attempt to block greatly needed business- and personal-tax relief, the contracting corporate sector is now forcing job layoffs faster than politicians can increase unemployment compensation. ....
Senator Daschle's stimulus proposal, however, is nothing more than an ineffectual, government-entitlement spending bill — not a tax cut — that would merely redistribute income. The Democratic package has no incentive effect that would raise after-tax economic rewards for innovation, investment, and work effort. Hence it could actually block economic growth rather than spur it. ...
A modest combination of tax cuts and central-bank money creation should provide sufficient new investment and work incentives — and the liquidity to finance them — to get economic growth back on a 3% recovery path next year. But again, these would be moves in the right direction, and not the solution. Remember, a normal recovery rate historically runs in the 5% range. This is why comprehensive tax reform and simplification should remain on the policy front burner, and why the Federal Reserve must develop a monetary reform plan that will place real-time financial and commodity-price indicators at the center of its money-creating operations.
Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m.
While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG).
He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA).
After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today.
After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA)
He got in his car (MADE IN GERMANY) and continued his search for a good paying AMERICAN JOB.
At the end of yet another discouraging and fruitless day, Joe decided to relax for a while.
He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA),
and then wondered why he can't find a job in this recession.
---------------
Wonder if he tried saying 'want fries with that' or applied to K-Mart to stock the imports on the shelves?
Doesn't some of the "blame" for the recession go to the banks who loaned massive amounts of money to telcom companies whose business model, it turns out, doesn't work. And speaking of business models, what about all the investment capital and loans that went to dot com companies. Doesn't that have something to do with it? And while we are talking about dot coms, isn't it true that many of there companies spent money on all sorts of ridiculous ego sating things like fancy parties, chic office locations, and gimmicks with no conceivable ROI? And then there were all the individual investors calling Yahoo "a buy" at $115 per share. I personally recall being laughed at by all the fellas around the office because I was paying off debts and saving in a money market fund when they were buying MSFT for $95 per share, and Cisco for more than that.
All of this stuff was going on long before Sept. 11. Was Greenspan ham-handed in dealing with this? Perhaps. I am not smart enough to know. But any explanation of this downturn which does not place at least a good portion of the blame at the feet of investors and banks and businesses who used bad judgement with their money is probably full of baloney.
But like I say, I have NO economic expertise whatsoever. Caveat emptor.
The main forces that affected the economy pre-Sept 11 were oil prices, Microsoft ruling, and fraud.
Current average 1-yr CD rate is 2.79% (see bankrate.com). What's your strategy now?
Greed = fraud = greed.
Well, by the time I paid off my debts (which were all high interest), the market was peaking. So I limited my position to my 401K, which was, and is, split 60% growth, 20% bond, 20% value. Since the markets been a loser many months now, I have chosen to limit my contributions to 10%. Another 40% (yes, 40%) of my take home this year went into a money market fund which, thanks to Greenspan, probably isn't keeping pace with inflation right now. There are probably much better ways to manage money,but I figure 2% is better than -10%, or -15% , or -20%.
Plus, I have some important short and mid term goals right now which will require money. My wife is much more comfortable with risk than I am. When it is time for me to risk my beans, it'll be when I start my own business, not plopping down cash on a company I know next to nothing about. In other words, as Clint once said, " a man's got to know his limitations." I don't know how to invest in individual stocks, and until the thing bottoms out, why should I invest in an index fund? But I have been saving up so that my wife and I can relocate to Colorado and put our roots down there, and that is the main reason I have kept the money safe. But hey, I set aside 50% of my income this year. How many people can say that?
Fraud = gambling = manipulation.
If people are not working or underemployed, they are not buying. Do we need more workers, textile, appliances, whatever YEP. Might they cost more to buy? YEP. Will this be cheaper for the country YEP.
It's pay me now (price) or pay me later (taxes) for unemployment comp, social, crime and safety net costs. Notice goverment is the only growth industry - what you won't pay in price, you pay in taxes.
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