- The Washington Times - Tuesday, May 27, 2003

Again, Alan Greenspan has raised the specter of lowering interest rates should the economy linger in its malaise. Unfortunately, what this fiscal dinosaur fails to realize is that our country’s financial health is beyond malaise, and that we are quickly entering the economic SARS zone.

Each round of interest rate cuts has been met with an ugly round of corporate downsizings and layoffs. True, there’s been an anemic and patchy bump in corporate profits as a result of cut backs, but at what price?Potential breadlines? And who benefits from this bump? Investors who have seen a 5 percent or 10 percent rise in what’s left of their ravaged portfolios?Corporate officers using this window of opportunity to exercise stock options?Commission-driven financial service representatives advising clients to get in front of this inevitable “rally”?

For generations, Americans have been encouraged to squirrel away a little cash for a rainy day.Be frugal, be responsible, save. Well, those frugal responsible savers are now bleeding with CD rates approaching ground zero.Washington’s mantra that the consumer will spend us out of this downturn is falling upon deaf ears.And why?Because Mr. Greenspan’s rate cuts are generating fear.And fear is generating a tight-fisted attitude even among individuals fortunate enough to have some disposable income or a relatively secure job.

I read over and over again that a hot housing market is the one bright spot keeping this economy afloat, and that this light in the dark is being kept lit by historically low interest rates.Sure, there’s cheap mortgage money out there, some with terms that rival a shell game.Take for example, the “80-10-10” variation.It involves a 20 percent down payment with an immediate 10 percent home equity loan cash-out, effectively upping the mortgage commitment to 90 percent of the purchase price.Lenders love it. Fees.To this oldtimer, however, it sounds alarmingly familiar to the freewheeling low margin rate debacles associated with the 1929 stock market crash or the 1990’s dot-com fiasco.And in regard to mortgage rates themselves, does it really matter if it’s 2 percent money or 12 percent money when a pink slip or two hits a household? A foreclosure is a foreclosure. This recent rush into a superheated housing market by a generation of young people that has not seen tough times represents nothing less than an economic time bomb whose fuse is getting precariously short.

I’m not a government economist, so who am I to give advice to Alan Greenspan and his policy-making buddies on the Federal Open Market Committee.But if I could advise them, I’d encourage them to look down into the trenches and gauge the growing frustration and fear that seems to be permeating growing numbers of Americans. Talk to people who have been out of a job for a year or more, the ones who have slipped off the statistical radar screen into the sea of discouraged workers.Spend some time with senior citizens whose savings are quickly being depleted.Or chat with some former dot-com honcho turned cab driver about his fall from expense account heaven into zero-balance, 401(k) hell.

If one likens this economy to a pyramid, the foundation of which supports the entire structure, then it is time to begin focusing on the material that makes up that foundation.That material is not housing, it is not consumable goods, it is not factory orders, it is not productivity, nor is it any other government concocted statistic that can be easily manipulated by some politically driven bureaucrat.And it certainly is not interest rates.It’s jobs — reasonably well paying, secure employment opportunities for the vast majority of Americans who want nothing less than to work toward the American dream.If that comes with a bit of inflation, so be it.If that means a rise in interest rates, so be that too.

It’s time for Mr. Greenspan to climb down off that rarified pyramid’s apex and examine some of those ominous cracks in the base.Any further hiding his head in the sand just may result in the pyramid’s collapse.And personally, the last place I’d want to be when that happens is on that apex.

Howard Karlitz, who taught organizational management at the State University of New York, is a commentary and features writer living in Los Angeles.

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