- The Washington Times - Friday, November 15, 2002

Testifying before Congress for the first time since the central bank chopped a half-a-percentage point from the federal-funds overnight rate on Nov. 6, Federal Reserve Board Chairman Alan Greenspan told the Joint Economic Committee on Wednesday that "the economy has hit a soft patch." Indeed it has.
Yesterday's report about flat retail sales in October confirmed that, even in the once-robust consumer sector, economic activity has been dead in the water since July and early August. (October's flat retail performance followed a month that registered a 1.3 percent decline in retail sales.) Meanwhile, the business investment sector remains dismal. Also, likely demand for U.S. exports from Europe and Asia will remain, at best, stagnant in the short term, simply because the eurozone and Japanese economies are in worse shape than America's. If such torpor should infect the U.S. consumer for any extended period of time, the outlook for both the global and the American economies would deteriorate measurably.
Unfortunately, other than expressing the Fed's belief or was it hope colored by desperation? that the U.S. economy is merely "going through a soft patch which will unwind very quickly," Mr. Greenspan offered little evidence to justify such optimism. In fact, he provided the opposite.
He appropriately noted the "enormous success" that incentives from automakers had in increasing personal consumption late last year and early this summer. There is growing evidence, however, that automakers cannibalized future sales in order to maintain current production levels. Mr. Greenspan also cogently explained the important roles played by home-equity loans and housing "cash outs" both of which increased household debt in maintaining consumption levels significantly above what they otherwise would have been. But the financial benefits of refinancing and the ability of equity cash outs to generate additional gobs of cash to finance current consumption have, for the most part, played themselves out.
Mr. Greenspan did not suggest any new sources of ready cash to boost future spending by the once-indefatigable, now excessively indebted American consumer. With all other economic sectors, both foreign and domestic, seemingly unable to provide sustainable increases in aggregate demand, where is the reason for optimism?


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