Data Bases • Custom Term Papers • Free Term Papers • Free Research Papers • Free Essays • Free Book Reports • Plagiarism? Links • Top 100 Term Paper Sites • Top 25 Essay Sites • Top 50 Essay Sites • Search 97,000 Papers @ DirectEssays.com • Search 101,000 Papers @ ExampleEssays.com • Search 90,000 Papers @ MegaEssays.com Free Essays • Term Paper Sites • Chuck III's Free Essays • Free College Essays • TermPaperSites.com • My Term Papers • Get Free Essays • Essay World • Planet Papers	Search Lots of Essays Back to Subjects - Business None Provided11 None Provided11 One year ago, individual investors were praising Alan Greenspan. Now they're condemning him. What exactly happened? The ever-so important tech stocks collapsed, that's what. Those companies that were the highest-flying, most-popular investments suddenly dropped to levels that those buying "great companies" did not think it possible for them to go. Where just nine months ago we were in danger of inflation, now the American economy is coming to a dangerous halt, growing at a crippling 1.1%. How could Greenspan, the man who managed the economy with such a skillful touch for 14 years, have screwed up so badly? Why is it that those who believed deeply in his psychic-like powers when he maneuvered us through crises in 1987, 1990, 1994, and 1997 suddenly believe the Chairman of the Federal Open Market Committee is It's because people are angry, angry and scared. More than $2 trillion of market value has evaporated from the Nasdaq market alone over the past year. If people truly vote their pocketbooks, then as $20,000 per every household went up in smoke those pocketbooks seemingly turned their owners not just against Clinton and Gore but any remaining symbols of the time of prosperity. Now Greenspan is the last of the brain trust that supports U.S. fiscal policy over the last eight years, still in office, surrounded by a bunch of new people who aren't so sure it was so great and weren't there anyway. These complains came to a climax this past week when John Chambers, CEO of Cisco Systems, said the Federal Reserve acted too slowly in lowering rates and now must aggressively cut rates even lower than the already points in order to keep the economy going. Chambers also called for President Bush's tax cut, aimed at exciting the economy and getting things going again. Great logic - except for the fact that it is just plain wrong. Interest rates matter most to companies that want to fund growth through loans. As the economy had grown over the last eight years, companies and individuals alike spent and borrowed wildly, convinced that the good times would not end. The Fed actually encouraged this by making the cost of debt exceedingly cheap, flooding the market with dollars looking to be put to use. Companies built and built with the expectation that the growth they were experiencing would not stop. There are two things to recall here. First, the economy is in really good shape. It's not growing very fast, and consumer confidence is down, but the most recent unemployment numbers for Northern Virginia, for example, are 1.7%. Nationally, it is 4.2%. Compare that to the miserable times at the end of the Carter years when it was north of 11%. Unemployment is rising, but the economy is not really crumbling, much as it feels that way. Unfortunately, with the overhang of inventory and capital investment, lowering interest rates will not help it. This has very little to do with the increases of last year, and everything to do with America’s collective spending habits of the boom years. With so much non-performing asset base in the pipeline, one then has to ask: Even if the Fed continues to lower rates, to whom will this credit go? If companies are already in debt up to their gills, with under worked facilities and warehouses full of inventory, then how is it that enticements to increase capital spending are supposed to It won't, unfortunately. Although Greenspan and company may not have anticipated just how fast the psychology of the American consumer would deteriorate; he was warning long ago that too-high growth rates could lead to a crash. During the late '90s there was a general feeling that technology-induced increases in productivity were responsible for growth rates exceeding what economists previously believed healthy. For all of our desires to the contrary, Greenspan is not a psychic. For all of his tinkering, he could not predict nor protect us from the OPEC-led 200% rise in oil prices, nor could he magically create new electricity sources in California. The US economy is feeling the pain of a stock market that has let America down. The economy is feeling the pain of a decade of capital spending, a higher and higher portion of which was made using debt. Until that debt load goes down, banks will not open up the taps and loan again. And until added spending hits the economy, the service on that debt will grow more painful. That leaves the tax cut as the next event to prime the spending pump. Just like interest rates, however, it's not like a tax cut has an immediate effect. Most peoples' paychecks would grow by a few bucks a week, hardly afford an extra pack of cigarettes. It will help – but slowly. The Fed did not have much choice in raising rates last year; the credit quality of the biggest lending institutions was deteriorating too fast. And now the Greenspan is He can lower rates, but the banks aren't willing to take the same risks they did before and there is an absence of really good borrowers; many companies overbuilt in the late 1990's anyway. Until inventory levels work their way through the channels and existing capacity is being utilized, borrowing levels will remain low, regardless of what Until Greenspan comes up with another plan, the U.S economy is in grave danger. Even if America escapes a recession, the economy will take a deep cut to the throat. Many of us will feel it, and none can escape. Bibliography: Word Count: 941
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