Consumers Fearful of Future, Fed Chief Says : Downturn: Greenspan, in bleak assessment, warns the recovery has ‘clearly faltered.’ He cites ‘80s debt burdens.
Federal Reserve Board Chairman Alan Greenspan, in his bleakest economic assessment to date, warned Wednesday that the recovery has “clearly faltered” and said that Americans are now more fearful about their future well-being than at any point in his life.
Greenspan said that the heavy debt burdens accumulated during the economic expansion of the last decade are preventing government agencies, private businesses and individual Americans from boosting their spending sufficiently to stimulate the economy.
“There is a deep-seated concern out there, which I must say to you I have not seen in my lifetime,” the 65-year-old Fed chairman told members of the House Ways and Means Committee. “It is very hard to grasp the depth of the concerns unless you look at it as a problem (they feel) about their future.”
Greenspan said that the Federal Reserve is prepared to cut interest rates again if needed to stimulate the economy. The Fed already has reduced interest rates 14 times since the recession began in mid-1990.
“Obviously, we are looking at the situation very closely, and should further action be required, you can expect us to do so,” he told members of the committee.
Greenspan’s downbeat comments underscored a growing sense of economic gloom across the nation. Consumer confidence plunged in November to its lowest level in more than a decade--and the third-lowest level ever--according to a new survey by the Conference Board, a New York research group. And General Motors, the nation’s largest industrial company, announced plans to close 21 plants and lay off some 74,000 workers over the next four years--the biggest in a series of massive job cuts disclosed by leading corporations in recent weeks.
The negative developments overshadowed President Bush’s effort to highlight Washington’s only major anti-recessionary measure to date--a $151-billion transportation bill passed by Congress this fall. At a signing ceremony staged on an unfinished road in Euless, Tex., Bush said that the massive public works measure means “jobs, jobs, jobs.”
Behind the scenes, the Bush Administration scrambled to respond politically to the worsening economic news by floating a proposal for a onetime, $300 tax rebate for every American taxpayer. Administration sources said that the rebate idea is just one of many proposals under consideration as the White House seeks to develop an economic growth package to be unveiled in the President’s State of the Union address in January.
White House Press Secretary Marlin Fitzwater denied that the Administration had committed itself to the $300 rebate plan and Greenspan and congressional leaders in both parties characterized it as an ill-advised, “quick-fix” proposal. Some critics said that it was reminiscent of a failed $50-rebate plan pushed by President Jimmy Carter in the 1970s.
“The American people are smart enough to know when they see a gimmick,” chided House Minority Whip Newt Gingrich (R-Ga.).
Faced with such criticism, Fitzwater seemed to distance the White House from the idea almost immediately. “There are a lot of ideas out there floating around but we are not willing to commit to any ideas at this time,” Fitzwater said while traveling with Bush in Texas.
Administration officials have said that Bush’s economic growth package is likely to include proposals for a capital gains tax cut, tax credits for business investments, an enhancement of individual retirement account benefits and other new tax breaks for the middle class.
The proposal to provide taxpayers with the $300 rebate, which would cost the federal government roughly $30 billion, apparently originated with political operatives at the White House and in the Bush reelection campaign.
The White House was said to be considering the possibility of urging Congress to follow a “two-track” approach to tax legislation early next year. One legislative package would contain short-term, anti-recessionary tax cuts, while a separate measure would provide incentives for longer-term savings and investments.
The fact that the White House is now considering such short-term tonics as a onetime rebate shows how concerned the Administration has become about the economy’s impact on the upcoming campaign and Bush’s plunging standing in opinion polls, some observers said.
“I guess we should congratulate the President for starting the bidding for the favors of the voters in an election year,” Rep. Andrew Jacobs Jr. (D-Ind.) said.
Greenspan said he believes that the fledgling economic recovery that seemed to be gathering steam last summer has faltered and that the economy is now in a “pause,” largely because America’s debts finally have become too much for the nation to handle. He said, however, that he expects a recovery to begin sometime in 1992.
In fact, Greenspan and other private economists are now suggesting that the current recession is the first since the Great Depression to be a “balance sheet” slump, one brought on largely by excessive speculation and debt accumulation.
“The bottom line is that the national balance sheet has been severely stretched,” Greenspan told members of the Ways and Means Committee. He said that it only became apparent this fall, as the economy struggled to recover, that the rising debts had “reached a magnitude that would restrain the American economy from a moderate recovery in 1991.”
Greenspan said that consumers and businesses appear to be taking advantage of lower interest rates to reduce their debts rather than to buy more goods or expand their production, a “healing process” that will delay the recovery.
The efforts to cut debts “was a signal that the balance-sheet restraints, feared by many for a long time, had indeed taken hold, working against the normal forces of economic growth,” the Fed chairman said.
“These events do not necessarily mean that a prolonged period of economic weakness is inevitable, but they do mean that policy-makers must consider these unusual forces when shaping their response in the current situation,” he added.