Greenspan Runs Out of Answers

DailyTelegraph ^ | 24 June '02 | IAN LOVETT

[rdavis84]

Greenspan runs out of answers
By IAN LOVETT Markets Writer
24jun02

FEAR and loathing spread round the globe on the weekend as it dawned on investors that US money boss Alan Greenspan may no longer have the answers.

Dr Greenspan is boxed between a stumbling US stockmarket and a slumping US dollar.

In previous crises such as the 1997 Asia bubble, 1998's LTCM hedge fund collapse and September 11, Dr Greenspan quickly cut US interest rates.

But this time, with US rates near record lows, he appears to be hamstrung.

Wall Street strategist Doug Noland said: "Dr Greenspan is caught between a rock and a hard place.

"If he cuts (US) interest rates to save shares the (US) dollar will plunge – and if he raises rates to save the (US) dollar the US sharemarket will plummet. He's in a bind."

Mr Noland also pointed out Dr Greenspan's options were limited because official US interest rates were now just 1.75 per cent – their lowest in 40 years.

AMP economist Shane Oliver said Reserve Bank governor Ian Macfarlane, our equivalent to Dr Greenspan – was in a similar bind.

He said Mr Macfarlane was in no hurry to raise rates here because of the unprecedented levels of personal debt, particularly mortgage debt.

Certainly Dr Greenspan has every reason to reassure investors after a nightmare week.

Last week was the US sharemarket's fifth fall in a row.

The Dow Jones industrial average fell 2.5 per cent last week, and the technology-packed Nasdaq dropped 4.2 per cent.

Our market's All Ordinaries index closed last week at 3204, its worst finish in eight months.

It is expected to trade lower this week, with only the traditional year-end window dressing likely to stem the bleeding.

Friday is the last day of trading for the fiscal year. Thursday is the last day of options trade.

However, the problems in the sharemarkets were dwarfed by the chaos in the currency market where the US dollar suffered its worst fall against the euro in 10 months.

The euro rose by 2.6 per cent against the US dollar and our currency gained 2.85 per cent.

While attention was focused on the tension in the Middle East, events in Brazil, where the economic situation went from bad to worse, had the potential to wreak greater havoc on the world economy.

Brazil's Bovespa stock index sank 11 per cent and official interest rates soared to 19 per cent, the highest since the 1995 Mexico collapse.

Moodys cut the outlook for Brazilian foreign-currency debt to negative, citing the unfolding credit crunch and the risk associated with October's presidential election.

The Argentine peso has now fallen more than 70 per cent this year.

The Australian dollar, by contrast, has risen from US51.06c to US57.36c, or more than 12 per cent.

http://www.dailytelegraph.news.com.au/common/story_page/0,5936,4565295^704,00.html

[rdavis84]

Got to the old question used so well ---- "Do You Still Beat Your Wife?"

That's what happens when you play a game, sometimes you win, sometimes you lose. Wonder what happened to all of the "Go, Alan, Go" folks here lately?

[tall_tex]

Mr. G got us all in this mess. His resignation or firing would be a great lift to the markets, stocks and money world wide. Of course that is just my opinion. Tom

[parsifal]

I don't think the economy is Greenspan's fault. By manipulating interest rates up and down,he might take a little edge off of good or bad times, but overall, the economy has a mind of its own. parsy.

[meenie]

How could Greenspan know the answers when he doesn't know the questions? He's a perfect example of an expert who knows nothing about his subject. Never was worth a damn as an economist but people just loved his parsing words without expressing an opinion on anything.

[kingh99]

The domino effect is so devastating as to not contemplate. Next you see homes devalued then the banks then everyone heads for the street. Seriously. Sick stuff. Only card modern man knows to play in such scenarios is the war card. Kill enough and break enough and you can build an economy and renew. It's like Salmon spawning. Die to feed the hatchlings.

Banks never gave up their fair share on the interest front. Too greedy. Rates people pay on debt is not commensurate with the rates Banks are paying. It's like hitting your toe. Your brain eventually gets the message, albeit delayed. Banks don't want to fail but they must for money to be properly priced. We should be paying 14% or 18 or 21 or whatever for money? I don't think so. Sad to see our system of capitalism has to be jolted out of the doldrums by breaking the stuff we built but that's the ticket out.

[parsifal]

"Banks never gave up their fair share on the interest front. Too greedy. "

I agree, but why stop with banks. Many employers don't pay what workers are worth either. Some have let the gov't subsidize their lousy paychecks with welfare and EIC. The fact is, most capitalists love the idea of getting something for nothing and gov't has let them do a lot of it. parsy.

[T. Jefferson]

Mr. G got us all in this mess. His resignation or firing would be a great lift to the markets, stocks and money world wide.

As always, it's the fed that kills the bull. Alan pulled a whopper this time, better than his 87 crash. The economy was screaming deflation and the need of lower rates, bumblehead Alan RAISED rates SIX TIMES; the result was no surprise, a recession and crash soon followed. We need a major catalyst to turn it around, Alan quitting might be just the thing.

[MonroeDNA]

I know very little about economics, therefore I get to speak. lol!

Seriously, it seems that we all were making a bunch of money a couple of years ago, and then the stock market collapsed. We all lost bigtime (OK, most of us). We tried to find the "goldmine" stock that would stand out, but overall, we failed.

We got out, and invested in real estate. I myself, a small investor, bought a house in an extremely appreciating location in south Florida. Interest rates helped greatly.

If the money bubble generated by the dot.com thing led to overvalued stocks, and some cashed in, and bought real estate, does that mean the bubble just shifted to real estate? Can it collapse, too?

If money represents work, or value (what does it really represent?), and there is too much money, doesn't that mean inflation? What causes deflation?

Please, will someone more educated that I answer my lame questions?

[RightWhale]

Can it collapse, too?

If those who are making big payments on their houses lose their revenue stream, then they will be forced to bail out of their house. Massive unemployment would do it, or being forced to take lower-paying jobs. New car sales will be hit first, and it seems like there are already some dealer price cuts in new cars, especially the more expensive cars.

[TLBSHOW]

Tax cuts for the Rich

[tall_tex]

Try thinking again.. of course that is just my opinion. Tom

[tall_tex]

Go Meenie Go.. You got the answer, he doesn't understand the questions. Of course that is just my opinion. Tom

[tall_tex]

Quitting, he will never do that. GW firing his sorry A$$, that would inspire us all. Mr. G must have a pictures of a lot of people in Washington having imtimate relations with various animals. Or maybe a few FBI files. Of course that is just my opinion. Tom

[tall_tex]

Sure, when.. Rich.. Ha

[Doe Eyes]

I really doubt Greenspain has any compromising info on our President, much less photo's of GW engaging animals.

[VRWC For Truth]

How about a tax cut??? :>)

[blackdog]

Yes, but he is married to Andrea Mitchell, has a lot of property in Cuba and spends quite a bit of time there throwing parties with his wife. He invites all the globe-hustlers so they can rub elbows with Castro and admire his cheap labor and cool methods of peasant control. All this while he is our Fed Chairman. All this is known by the media. All this is known by congress. Did anyone care at all?

[Rockitz]

Way out on a limb here....

Prediction: Partial stock market recovery due to major Al-Qaida leadership capture/kill, then collapse/depression due to the incredible debt out there. Timing? God knows. Hopefully after a Republican recapture of the senate and holding the House.

I wouldn't want Alan's job for anything during the next couple years and I'd love to be wrong on my prediction even if it does cost me.

[tall_tex]

Sorry, Doe Eyes, that was not my intention to insulte.. I think that you know that. Sorry but you should go back and read my post. I think that GW is biding his time and will act. I hope that our financial situation, both personally and nationally will survie. Hurry up GW, Time is wasting, Of course that is just my opinion.. Tom

[rdavis84]

It's possible, probably likely, that World Economics has spun out of control of the "Masters".

They'll not miss a meal, that's for sure, but the wave of depression for working folks will be massive.

I'm not sure that this is in the Globalists Plan at all.