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September 8, 1995
Mortgage rates stayed under 8.00% all week long, and "zero and zero" prices could be had at 7.75-7.875%.
Though there were no major releases of data, the ones available were weak. Wholesale sales fell a half percent, and business inventories rose .9%. If this pattern persists, businesses will soon be forced to cut production and begin layoffs.
Even during the recession fears in May and June, mortgage rates could not hold at 7.75% for more than a few days without rising. Until there is decisive news about the economy, or a new easing move by the Fed, the high sevens should be seen as an immediate locking opportunity.
For the last two summers, central bankers from around the world have gathered for a conference in Jackson Hole, Wyoming. (Don't worry; the Clintons were long gone by the time the pin stripes arrived.)
The lead discussion items for the bankers and economists were the pending budget cuts, and what, if anything the Fed should do in response. However, this year's meeting was less a financial rendezvous than a parenting workshop.
All politicians want the Fed to ease the instant the seven year plan to balance the budget is enacted. (Given an excuse, politicians always want the Fed to ease.)
Joseph Stiglitz, head of the President's Council of Economic Advisors, made the case for instant ease. Budget cuts will hurt the economy quickly, while Fed easing could take a half a year to produce offsetting stimulus. Going one notch further, he argued that bureaucrats would begin cost-cutting and layoffs in anticipation -- before the cuts were to take effect.
Now, if you have kids, or once were one, this line of argument may sound familiar.
"Dad, if I promise not to ask ever again, could I have my next four months' allowance Š today?"
"Mom, if I promise to do my chores on time for the next three months, can I go to Vail with the girls Š now?"
"If I promise to get straight A's in my junior and senior years, can I have the car Š now?"
If passed, the glorious seven year road to a balanced budget will begin with first-year savings of (drum roll, please) $15 billion -- out of the total $1.6 trillion budget, against a $200 billion annual deficit, not counting the extra $100 billion we'll steal from Social Security in 1996 alone.
Then, in the next six years, there is the small matter of sticking to the additional, deeper cuts we said we would make to get to balance.
Mr. Greenspan has no kids, but fortunately has lots of experience with politicians.
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