We Can Defeat Our Economic FOEs
Not with a bang but with a whimper. That's how the Clinton-Gore economy stumbles to an end. It's not a pretty sight. But will we end up mired in recession? Don't bet on it. We should skirt a recession and resume our prosperous march, as long as Congress supports, rather than undermines, President-elect George W. Bush.</br></br>As we enter the Christmas retail season, it's easy to come up with a list of sad data as long as Santa's happy list of holiday gifts. Durable goods orders dropped 5.5% in October and, of course, the Nasdaq Stock Market has lost 32% in 2000. The economic bears are on a rampage, forcing the bulls to hibernate for the winter.</br></br>How did we get here? Wasn't it just yesterday that gross domestic product growth was galloping at a 5% pace and financial authors sparked a bidding war over Dow 36,000, Dow 40,000 or Dow 100,000? Who broke up the party and launched this battle against our prosperity? Let's use the acronym FOE, pointing our indignant finger at the Federal Reserve Board, OPEC and the euro. Each of these institutions has knocked us a few degrees off course. Of the three, at least the Federal Reserve had good intentions.</br></br>Back on May 16, the day the Fed pushed up short-term rates by 50 basis points, I suggested on this page that the economy was preparing to slow on its own, and that bond bears worried too much about inflation. (If only my bet on the New York Mets came out so lucky.) "Be careful what you wish for. . ." goes the old saw. So now the Fed has achieved the slowdown it tried to engineer. Fewer cars are rolling off the assembly lines in Detroit, and carpenters will hammer fewer nails into new homes this winter. The junk-bond market has slammed its doors, and the Fed reports that bank loan officers have choked lending standards tighter today than during the 1998 credit crunch.</br></br>On Tuesday, Alan Greenspan prudently and presciently softened his inflation warnings, pointing out that a flabby stock market could "signal or precipitate a softening" in spending. For now, at least, we don't have to fret about irrational exuberance in share prices.