Thoughts on Greenspan

I think Bill made a rather large purchase--on margin--thinking that there would be a cut. Oh well....live and learn

------------------
stop posting my damn signature

 

Personally, I prefer a Fed Chairman who sees things in a theoretical rather than humanistic point of view. Sometimes the Fed has to follow a course of action that causes short-term pain but allows for long-term prosperity after the short-term pain is over.

Driving the economy into the ditch in 1991 was necessary to get the expansion for the next eight or nine years. Yes Greenspan sacrificed President Bush, but doing so likely helped the economy be what it has been over the past several years.

A rate cut is coming (probably several rate cuts, actually). They probably should've made the cut now rather than in January, but I guarantee that Mr. Greenspan has more information than I have. He's earned my trust with his handling of the economy thus far. And I certainly trust Greenspan to run the economy more than I trust Bill O'Reilly to (I like O'Reilly okay, but he's no economist).

------------------
Houston Sports Board
The Anti-Bud Adams Page

 

I've always found it ironic the a logical, pragmatic world of numbers like finance is driven more by intuition and emotion than it is strictly by numbers. I got my first taste of this when I visited the futures market a number of years ago, which is essentially gambling - betting on how some commodity will do.

All those people making trades all day are doing so not just on bottom-line figures but on hunches and gut feeling. I always found that to be kinda funny.

Ok, sorry for the sidebar. Back to your discussion.

------------------
The way to use life is to do nothing through acting,
The way to use life is to do everything through being. - Lao-Tzu

 

Mr. Greenspan is an economic genius in my opinion, but he is also an elitist who sees things from a theoretical rather than a humanistic point of view.

I think this statement is a pretty good summary of Greenspan. One thing to also remember, though, is that Greenspan doesn't make these decisions alone -- the entire board makes them, so if this dude disagrees with the decision, he needs to lambast the entire board, not just Greenspan.

Now on his comments, I agree that Greenspan is not as concerned with the individual worker -- but that's his job. His job is to ensure that over the long-term, the American economy is as healthy as possible. Sometimes, that means there will be short-term problems, but the Fed is not supposed to overreact to anything -- that's what gets an economy out of whack.

The Fed is especially not to react to the Stock Markets, which are now going psycho primarily because of the overvaluations Greenspan has been talking about for 2 years.

He would rather fight inflation, which is non-existent at this point, than allow companies to begin growing again at a rate that would improve the lives of working Americans.

The counter-argument to this is that if the Fed focused just on growth, we'd have inflation (its non-existent partially because that's been the Fed's focus) which would eventually lead to stagnation (recession AND high inflation simultaneously). Stagnation is extremely difficult to fix because combatting the recession requires pushing money into the economy, while combating inflation requires taking money out.

I think this is more a case of the Fed not doing what seems a great idea in the short-term and someone overreacting. All indications are if these trends continue (which by the way, are still of growth, just much slower growth), the Fed will drop interest rates in January, in which case all of this will be a moot point.

The second factor here is the Bush tax cut. Greenspan is adamantly against it and this may be a counter to that. If the tax cut is pushed and passes in the First 100 Days, then money will be rushing into the economy because people's weekly paychecks will grow (I'm not sure if it would take effect in 2001 or 2002, though), which will provide a short-term boost. If that happens, there's no need for the interest-rate drop.

I do think we'll hit a recession or at least a zero-growth period in the next few years, and I do think Bush will be blamed for it. Whether he deserves any blame depends primarily on his response. Presidents, in my opinion, do have some control over the economy. (For example, Bush Sr., in my opinion, did deserve blame for the recession because he didn't even try to combat it; Reagan did take steps to combat his recession, and he deserves credit for that, even though it caused other problems [budget deficits]; Clinton deserves some credit for the economy simply because of his dynamic personality. Whether you hate or love him, he made people believe that things were going to improve in 1992 and consumer confidence shot up -- that, in turn, spurs the economy. It continued to rise until, not coincidentally, this summer -- I think this is partially due to a lack of confidence in either candidate and the realization one would be President).



------------------
Is it any coincidence that the Cato is the only Rocket with a temperature scale named after him?

I didnt think so!!!!

 

Shanna: It's Stagflation.

As far as Greenspan, the boggling problem was not that he didn't cut interest rates, but that he remained with a neutral bias. Whether or not he sees the Bush tax cuts as a problem or not, he knew that that statement alone would give the market a downward spiral. It was the incorrect thing to do, period. It was politically motivated and Greenspan should and will take responsibility for it. The market has been beaten badly since September with the Nasdaq falling from 4200 to 2550 at the time of his announcement. Make no mistake people. The market has, technically, crashed. Greenspan made a very poor decision yesterday.

------------------
I got nothing.

 

shanna, a book was released recently profiling Greenspan. While it's true that can't run the Fed with an "iron fist" or anything, I thought I remembered reading in a review of the book that Greenspan wield unusually enormous influence over the Board-- even more so than you'd assume from his position.

In other words, if he wants something done, it's going to happen. I'm not certain this is perfectly accurate but I thought I'd throw it in the mix.

 

LOL! That's exactly what I was thinking while I was reading it... that and "what the heck is this guy whining about?"

------------------
I use smilies and I LOL -- I'm your worst nightmare.

 

Greenspan has said repeatedly that the stock market really has no bearing on the Fed's decision. When you think about it, I'd be more scared if they were basing their decisions on the market. I can't predict what the hell the market is doing from day-to-day, yet people want Greenspan to cut rates based upon the market.

Lower interest rates combined with a false sense of wealth have helped give several people a security blanket they shouldn't be using. I see people in their 20's barely making $35k driving around in $50k cars... personally, I think it's ridiculous, but to each their own. Even though it meant tanking the NASDAQ, I think what Greenspan is doing is good for the country. As bad as it may sound, cutting productivity is not necessarily a bad thing. Overproduction and wasteful spending only increases the chances of inflation and I for one am glad the Fed has kept that in check.

Unchecked growth and "overproductivity" combined with irrational behavior (as I think Greenspan once put it) can only lead to disaster for an economy. One of the main purposes for the Fed's existence is to keep the pressures of inflation and recession at bay and neutral while still accomodating growth.

People that say that Greenspan is "stupid" or "wrong" for raising and then not lowering interest rates are short-sighted in my opinion. The Fed is thinking long-term, not short-term.

------------------
I use smilies and I LOL -- I'm your worst nightmare.

 

Whether or not he sees the Bush tax cuts as a problem or not, he knew that that statement alone would give the market a downward spiral. It was the incorrect thing to do, period.

The markets have zero effect on the Fed decision making, and only a tiny effect on the economy. The markets are a separate world from the economy, and will rise and fall on their own. The Fed is responsible for the economic well-being of the country.... The markets react to the Fed, not the other way around.

It was politically motivated and Greenspan should and will take responsibility for it.

How so? He's been neutral for 6-8 months... He was raising interest rates for the last 2 or 3 years, keeping them steady before that, and lowering them before that -- all during the Clinton administration. How is this particular action political?

------------------
Is it any coincidence that the Cato is the only Rocket with a temperature scale named after him?

I didnt think so!!!!

 

Shanna:

I know the market reacts to the Fed. So did he. That is why the decision he made was so ill-timed. When the markets were spiralling upwards the last few years, he raised interest rates specifically to hamper the growth of the overall market.

Now that the Nasdaq has fallen more than 50%, he chooses to do nothing with interest rates? How can this not be politically motivated, especially with inflation at one of it's all-time lows.

It was simply a blunderous move, and one that puts serious doubts into the marketplace. The fact that the Fed shouldn't react to the market is false. If they change interest rates to curb growth when the markeyt is rising too fast, it should do vice-versa, as well.

Nice to see so many truly knowledgable on this board. I wouldn't have thought too many people would have been paying attention, or caring for that matter.

------------------
I got nothing.

 

i thought he was a pretty sensational Beat Writer and Poet and that song he had out in the 90s ballad of the Skeletons was great.

------------------
"What is it with this girl, has she got beer flavoured nipples??"
- Heath Ledger in 10 things I hate about you

 

I know the market reacts to the Fed. So did he. That is why the decision he made was so ill-timed. When the markets were spiralling upwards the last few years, he raised interest rates specifically to hamper the growth of the overall market.

See, this isn't true. The Fed raised interest rates to slow the growth of the economy, not the market. The Fed may issue warnings and such about the market, but the Fed does not make decisions based on the market. You can have bear markets in strong economies and bull markets in weak economies. The Fed is going to focus on the economy and let the markets do as they please.

Now that the Nasdaq has fallen more than 50%, he chooses to do nothing with interest rates? How can this not be politically motivated, especially with inflation at one of it's all-time lows.

It's not politically motivated because the Fed never makes decisions based on the markets. Besides, many people still feel the markets are well over-valued. The Dow is down just 10% from it's high, and many analysts believe a proper correction would be in the 15-20% range.

If they change interest rates to curb growth when the markeyt is rising too
fast, it should do vice-versa, as well.

Again, all the interest-rate hikes were due to economic factors: extreme low unemployment, high productivity, high utilization, high consumer demand. All of these factors have a direct impact on the economy and on inflation. The markets just tend to follow that -- that's not the Fed's problem, though.

Look at it this way. Basically all of those factors above move together (more or less). When the economy is weak (early 90's), the Fed moves rates down. When the economy is strong (mid 90's to about a year ago), the Fed moves rates up. When the economy is growing, but fairly slowly (now), the Fed leaves all alone. If you watch the Fed's policy shifts over the past 10 years, it'll follow this pattern every time, regardless of the market.

The economy is still growing, although the pace is dropping. If it continues to drop and economy shows signs of going to the "weak / recession" mode, the Fed will lower interest rates.

I fail to see how it's politically motivated. Do you think Greenspan wants Bush to fail? If so, he's going about it all wrong. The thing to do would be keep the economy growing until about 2003 and then tank it for the 2004 Elections. To do it at the beginning of the administration is silly because a recession would not likely last 4 years anyway. And in the process, he'd be destroying his name and reputation.

On the other hand, he could just be doing the same thing has has been for 15 or however many long years. It fits his exact pattern.

------------------
Is it any coincidence that the Cato is the only Rocket with a temperature scale named after him?

I didnt think so!!!!

 

Here's some text from Greenspan's July speech explaining their policy:

The last decade has been a remarkable period of expansion for our economy. Federal Reserve policy through this period has been required to react to a constantly evolving set of economic forces, often at variance with historical relationships, changing federal funds rates when events appeared to threaten our prosperity, and refraining from action when that appeared warranted. Early in the expansion, for example, we kept rates unusually low for an extended period, when financial sector fragility held back the economy. Most recently we have needed to raise rates to relatively high levels in real terms in response to the side effects of accelerating growth and related demand-supply imbalances. Variations in the stance of policy--or keeping it the same--in response to evolving forces are made in the framework of an unchanging objective--to foster as best we can those financial conditions most likely to promote sustained economic expansion at the highest rate possible.

Maximum sustainable growth, as history so amply demonstrates, requires price stability. Irrespective of the complexities of economic change, our primary goal is to find those policies that best contribute to a noninflationary environment and hence to growth. The Federal Reserve, I trust, will always remain vigilant in pursuit of that goal.

Notice that's it is all about Growth and Inflation, rather than the markets. The full text of this and other Fed speeches are at:
http://federalreserve.gov/boarddocs/testimony/2000/

------------------
Is it any coincidence that the Cato is the only Rocket with a temperature scale named after him?

I didnt think so!!!!

 

Most of the investment community expects a rate cut no later than the Jan 30th meeting, probably 25 basis points. It wouldn't shock me if the cut was 50 bp if corporate earnings continue to tank.

------------------

 

Triple the Fat, in my opinion you have the "cause & effect" skewed. The market tanked because it is following Greenspan's moves. Greenspan is doing what he's doing solely based upon indicators such as the CPI, inflation, industry output, etc. It's we "the minions of the market" that are reacting to him. He is doing right, we are the ones acting like idiots and buying and selling at every shift of the wind.

Think about it this way, the market reacted positively to Oracle's earnings forecast. The market then was blasted when Cisco was downgraded by Merril Lynch. Why on God's green earth should those 2 company's forecasts affect the ENTIRE market ALL AT ONCE? It shouldn't. "Irrational exuberance" was Greenspan's quote, and that's exactly what it is (at least when everybody's happy, when everybody's pissed it's irrational damnation...hehe).

The market is reacting to individual stories, individual earnings reports, and individual analyst ratings adjustments. It's a nutty environment. Greenspan does what he needs to do based upon rational thought; he can't base his decisions on the whims of others. If you look at articles on a daily basis before every meeting of the FOMC, you'll see how everybody is waiting for Greenspan to say ANYTHING. The market accordingly reacts whether he says something positive, negative, or says nothing at all. When he says nothing at all or says it ambiguously as he often does, people begin guessing.

The NASDAQ falling 50% has nothing to do with anything. Where were the people clamoring for him to do something when the NASDAQ was flying sky-high last year? The NASDAQ and much of its tech composition has been WAY overvalued. What you are seeing is a correction. I haven't looked too closely lately, but I'm willing to bet the ratio of NASDAQ companies PE ratios are still overvalued to those whose PE ratios are not is still out of whack. Many of these companies are still overvalued. In some of these cases, I think people have overreacted in the opposite direction and driven prices down... what exactly was Greenspan supposed to do? We have irrational thought-processes running the market!

This is where we disagree and apparently we'll always disagree. I don't think Greenspan/The Fed "change[d] interest rates to curb growth when the market [was] rising too fast". I think they changed interest rates when the economy was growing too fast and an inflationary period was threatening that growth; they did this irrespective of what the carnival known as "The Market" was doing.


Anyway... good banter.

------------------
I use smilies and I LOL -- I'm your worst nightmare.

[This message has been edited by Dr of Dunk (edited December 20, 2000).]

 

I don't see how that last part could be true. If people are watching their savings evaporate by the day, are they not going to cut back on investment and purchases? Wouldn't this then lead to layoffs? I don't see how that could not hurt the economy in a significant way. Maybe you could explain.

I should have clarified this -- a short-term market change won't much effect on the economy. Generally, money invested in markets is savings money and is there for an extended period of time. There are exceptions, such as the daytraders and such, but that makes up just a tiny fraction of the overall market.

For example, I have some money tied up in the markets -- but it's nothing that I intend to spend in the short-term anyway. Most experienced market people know that the market will eventually rebound, so they don't worry so much about the short-term losses.

Meanwhile, short-term money is generally stored in savings accounts, checking accounts, bonds, etc. That money isn't affected, so short-term spending habits don't change drastically.

Now a long-term drop in the market is a different story because, like you said, that could affect consumer confidence and spending habits. But even with this 50% drop, the market is where it was about 18 months ago, so people who have been in it long-term should still have a hefty profit (especially if part of their investment was in the DOW, which hasn't dropped as noticably). It's the people who've only been in it for the short-term (like ME ) who are hurt by it!

There's also another situation which was explained to me a while back, so this might not make total sense. Basically, unlike banks and such, the markets cannot "create" money. For a stock to go up or down, people have to buy it AND sell it at those prices, so the market is just an exchange of money from one party to another. For every transaction, the sum money created/lost is 0. In that respect, all the market does is change who has the money, but the total money involved in the economy doesn't change.



------------------
Is it any coincidence that the Cato is the only Rocket with a temperature scale named after him?

I didnt think so!!!!

 

Not a whole lot of time here, I'll post more later.

The economy is still growing, although the pace is dropping. If it continues to drop and economy shows signs of going to the "weak / recession" mode, the Fed will lower interest rates.

Whether the economy is growing or not is debatable. But the economy and the market, long term, are almost 100% positively correlated. When Greenspan was raising interest rates because the economy was supposedly growing too fast, you don't think the market's skyrocketing behavior didn't influence him to make that decision?



------------------
I got nothing.

 

Certainly asset inflation, including the overvalued stock market, played some role in the economic policy of the Fed since asset inflation is still inflation, but we've had periods since Mr. Green span has been in charge where we had the stock market growing at a relatively fast rate and the Fed either lowered interest rates or kept them the same. The rising stock market alone didn't cause the Fed to increase rates. There were other economic indicators that showed a need for raising rates at the time to prevent the economy from overheating.

Excess inflation is one of the worst economic problems a country can face. Better to overcompensate (not saying the Fed has done that in this case) and get slower growth than undercompensate and see inflation rear its ugly head. Even a recession is preferable to rampant inflation.

------------------
Houston Sports Board
The Anti-Bud Adams Page