NEWS AND COMMENTARY
February 6, 2001
Fed Governor McTeer Says Economy Could Use More Consumer Spending
By Dow Jones Newswires
Consumers Aren't Buying The Fed's Advice ... Weiss comments
RICHARDSON, Texas - The way Federal Reserve Governor Robert McTeer sees it, there's nothing wrong with the economy that couldn't be fixed with a little more consumer spending.
'If we all join hands together and buy a new SUV, everything will be OK,' the president of the Federal Reserve Bank of Dallas told the Richardson Chamber of Commerce, the Associated Press reported.
Speaking for the first time since the Fed's half-point interest-rate cut last week, Mr. McTeer said the underlying 'new economy' remains strong despite slower growth in the last two quarters. He also made a case for cutting taxes.
After roaring along at growth of better than 5% in the first half of 2000, economic output rose only 2.2% in the third quarter and 1.4% in the fourth quarter. The marked slowdown led the Fed to cut interest rates by a half-point twice last month.
Faith in the technology-driven economy has been shaken as the Nasdaq Stock Market tumbled, many dot-coms went bust and blue-chip companies began announcing job cuts by the thousands. But Mr. McTeer said the importance of information and technology are here to stay.
'The new economy isn't dead,' he declared, according to the AP. 'It may have a hangover. It may have the blues, but it isn't dead.'
Asked about the federal budget surplus, Mr. McTeer said he agreed with Fed Chairman Alan Greenspan that he favors using the surplus to reduce the federal debt. In Washington, pressure seems to be growing to use some of the federal surplus for tax cuts and possibly for additional government programs.
'If it comes to a choice, [Mr. Greenspan] prefers -- and I do too -- tax cuts to more government spending,' McTeer said, the AP reported.
He went on to say that reducing marginal and capital gains tax rates retroactive to Jan. 1 would help pump money into the economy more quickly. Mr. McTeer acknowledged, however, that tax cuts are a slow, inefficient way to stimulate the economy.
'But federal tax receipts are at an all-time high,' Mr. McTeer noted, according to the AP. 'And so there's some moral question, I think, how long you keep people's tax rates high if you're taking in more money than you need.'
He closed by telling the business leaders of a simpler plan to boost the economy: 'Go out and buy something.'
Consumers are too afraid to restart the spending frenzy that fueled America's roaring economic growth of the last decade. Here's why: Consumers are already up to their necks in debt, the stock market isn't giving them the high returns to which they've grown to depend on, and companies are laying off workers in droves. 'Go out and buy something' is easier said than done.
Still, with the latest round of interest rate cuts, homeowners have flocked to remortgage their houses to lessen their debt burden. And credit card charges may not have stalled yet. People won't be out buying SUVs, as Mr. McTeer suggests they should, but instead they will be trying to pay bills and buy the bare necessities as they worry about layoffs and reduced work hours. The nation ran a negative savings rate for the past few months -- a practice that doesn't allow for a cushioned landing when hard times hit.
Consumer confidence levels have fallen at a record pace -- and most consumers haven't yet felt the brunt of the economic slowdown yet. With more bad economic news coming out every day, don't look for consumers to make another major turnaround in their spending habits. This, in turn, will make the economic downturn even worse. So, here's our advice: "Start saving for a rainy day," because the clouds are rolling in.
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