With an 0-and-2 record in his last two at bats, Federal Reserve Chairman Alan Greenspan stepped up to the plate and bunted.
Why not play it safe? His last appearances were a swing and a miss. At the Fed's July semi-annual monetary policy report to Congress, Greenspan forgot he's supposed to be speaking for the entire policymaking committee and instead opted to lecture his audience on corporate greed.
One month later, at the Kansas City Fed's annual Jackson Hole Conference, Greenspan went on the defensive. He said there was no way to know for sure if the late 1990s stock market boom was a bubble, that in retrospect it was a bubble, and that there was nothing the Fed could have done about it short of inducing a recession.
So today, testifying before the House committee responsible for budget issues, Greenspan addressed fiscal policy, urging Congress to reauthorize the Budget Enforcement Act of 1990, which put limits on discretionary spending and mandated any new tax and spending policies be budget neutral.
He also fired the opening salvo in the government's effort to close the gap between revenue and future liabilities; specifically, benefits for Social Security and Medicare.
"All possible policy solutions should be on the table," Greenspan said of the government's burgeoning liability as the baby boomers start to retire. "Recently, the Bureau of Labor Statistics introduced a new index that could provide a more accurate measure of the cost of living for the indexation of both retirement benefits and tax brackets."
One wonders if the AARP is listening. A powerful lobby, the American Association of Retired Persons won't like the idea of cost-of-living increases on Social Security benefits to constituents getting nicked because of a new and questionable index. Data on expenditures, on what consumers actually bought, are available with a one-year lag.
With the release of the July consumer price index in August, the BLS introduced a new "chained" CPI, which does away with a fixed-basket approach to measuring inflation and instead allows for the substitution of lower priced items for more expensive ones.
Some 30 percent of all government expenditures have a cost-of-living adjustment attached to them, so the new index, if approved by Congress for that purpose, would have a material effect. The old CPI rose 1.5 percent in the year ended July compared with a 1.1 percent increase for the chained CPI.
It was the large budget deficits of the early 1990s that prompted the previous CPI retooling. The Boskin Commission, which was charged with examining the overstatement in the CPI, reported in 1996 that the index exaggerated inflation by 1.1 percentage points.
"From a policy and statistical standpoint, inflation is being kept down," says Joe Carson, an economist at Alliance Capital Management. "But underlying pressures are going to build." Without the various CPI "fixes" over the years, which have depressed reported inflation, core inflation (excluding food and energy) is running at 3 to 4 percent, Carson calculates. "We'd already be in a stagflation period if we didn't change the measure of prices." Inflation? Who's worried about inflation? Most folks think the applicable model for the U.S. economy is deflationary Japan.
With the broad monetary aggregate M2 growing at a 9.3 percent annualized rate in the last 13 weeks, it's hard to understand the deflationary fears.
To be sure, uncertain times may encourage the public to hold higher money balances. What happens when people decide to start spending again? Unless the central bank drains the excess liquidity, higher inflation will be the result.
For that reason, Carson thinks the Fed is making the same policy mistake it made in 1998, when it assumed a financial market event -- Russia's default and the near collapse of hedge fund Long-Term Capital Management -- would translate into an economic event.
It didn't. Instead of raising rates, the Fed lowered rates by 75 basis points in the fall of 1998. It didn't begin to remove the added stimulus, which in retrospect fueled the late 1999/early 2000 NASDAQ surge, until June 1999.
Carson thinks inflation -- not 1970s style but something higher than the Fed can tolerate -- is pretty much baked in the cake by "the alignment between prices and interest rates. We haven't had a period where the return on an asset -- housing -- was way above the cost of financing it since the 1970s." When interest rates are low relative to inflation or low relative to a single sector, such as housing, "history shows that inflation can be sustained in total or in specific sectors," he says.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
SLOW-MOVING STORM: The typhoon has started moving north, but at a very slow pace, adding uncertainty to the extent of its impact on the nation Work and classes have been canceled across the nation today because of Typhoon Krathon, with residents in the south advised to brace for winds that could reach force 17 on the Beaufort scale as the Central Weather Administration (CWA) forecast that the storm would make landfall there. Force 17 wind with speeds of 56.1 to 61.2 meters per second, the highest number on the Beaufort scale, rarely occur and could cause serious damage. Krathon could be the second typhoon to land in southwestern Taiwan, following typhoon Elsie in 1996, CWA records showed. As of 8pm yesterday, the typhoon’s center was 180km
TYPHOON DAY: Taitung, Pingtung, Tainan, Chiayi, Hualien and Kaohsiung canceled work and classes today. The storm is to start moving north this afternoon The outer rim of Typhoon Krathon made landfall in Taitung County and the Hengchun Peninsula (恆春半島) at about noon yesterday, the Central Weather Administration (CWA) said, adding that the eye of the storm was expected to hit land tomorrow. The CWA at 2:30pm yesterday issued a land alert for Krathon after issuing a sea alert on Sunday. It also expanded the scope of the sea alert to include waters north of Taiwan Strait, in addition to its south, from the Bashi Channel to the Pratas Islands (Dongsha Islands, 東沙群島). As of 6pm yesterday, the typhoon’s center was 160km south of
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
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