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Or Is It Quicksand?
-- November 13, 2002
Although Chairman Greenspan may classify the current economic slump as a 'soft patch', we think it's more like quicksand.
The economy is steadily sinking, and there is little the Fed or the government can do to pull it to solid ground. After all, 11 previous rate cuts did not prevent the economy from falling into recession. And tax cuts haven't helped turn the economy around.
If anything, these measures have made things worse. They encouraged debt-laden consumers to refinance their homes, cash out their equity, and continue spending during the recession. And now, consumers are still up to their eyeballs in debt, but with zero equity left in their homes!
Plus, no matter how low interest rates go, businesses just aren't willing to take out additional loans. Throughout the recession, they have tried to cut costs and shore up their bottom lines. And now that consumers aren't spending, businesses will be even less enthusiastic about taking on more debt.
The bottom line, as Chairman Greenspan himself said today: If businesses and consumers continue to hold back on spending, the economy isn't going to recover. But that's exactly what's happening.
Greenspan: Economy Hits 'Soft Patch'