Masonry Magazine December 1987 Page. 39
theWASHINGTONvire...
A SOMEWHAT SLOWER ECONOMY-BUT NO RECESSION
A SOMEWHAT SLOWER ECONOMY-BUT NO RECESSION-IS THE LIKELY result of the stock-market plunge that shook up consumers and businessmen so badly in October. The U.S. economy still remains vulnerable to further shock, to be sure. Economists in government and industry don't minimize the possibility or make rosy forecasts. But the markets have largely shaken down now. The confidence level will be rebuilt slowly. And the credit-controlling Federal Reserve is making herculean efforts to offset the contracting effect of the financial crisis by pumping money into the economy and paring interest rates.
The fall-out from the stock-market collapse is bound to be very substantial. When billions of dollars of share values are wiped out in one sudden sweep, attitudes inevitably change. Consumers and businessmen become nervous. They feel poorer, less certain of the future, and are inclined to go forward at a slower pace.
Decisions to spend are cut of canceled, at least for some time. Plans to invest are put on "hold" to permit the dust to settle. Many take a cautious approach to ordering, hiring, inventories.
EVERYONE STILL WANTS TO KNOW
EVERYONE STILL WANTS TO KNOW: Can-will-conditions get even worse? That, in turn, raises other questions: For example, what caused the break? And what is the underlying state of the U.S. economy is it strong or weak? The answer to the first question really depends a lot on whom you talk with. Some say that the market plunge reflected rapidly growing fears of inflation and a resultant credit squeeze that could bring the economy to a standstill.
But others feel that lack of confidence in the way the trade and budget deficits were being handled was a major cause of the stampede to sell. Actually, both concerns contributed.
AS FAR AS THE ECONOMY GOES
AS FAR AS THE ECONOMY GOES, IT IS ESSENTIALLY SOUND, economists feel. You'd expect them to say that, of course, but they mean it and make a case. And they say this even though they do expect both consumers and businessmen to cut back on undertaking new commitments for a considerable time to come. But they are putting down their bets on a rising volume of American exports at a time when imports will be declining in response to the weaker dollar. And lower mortgage rates might balance tendencies to put off home purchases.
In fact, the current easy-money policy is the main reason why you can't compare the aftermath of this year's stock-market debacle with that of 1929. Back then, the Federal Reserve cut the nation's money supply hard, leading to a wave of failures. This time, the Fed is pumping in the money, promising that no financial institution will fail because of a lack of liquidity. And it will keep doing so until the danger of recession passes.
NET, THE ECONOMY IS LIKELY TO KEEP ON GROWING
NET, THE ECONOMY IS LIKELY TO KEEP ON GROWING into the coming year, though not at the rate that has been seen over 1987's first three quarters. Instead of the 3% to 32% registered so far this year and expected to last through the fourth quarter, as well-2% or so appears more likely for 1988.
That would not be at all disappointing to the many analysts who felt, before the stock-market collapse, that the economy was hitting a rate of momentum that could not be sustained.
WON'T ALL THE MONEY END UP CAUSING A REVIVAL OF INFLATION
WON'T ALL THE MONEY END UP CAUSING A REVIVAL OF INFLATION in the U.S.? Analysts concede that this could well occur. But they are betting it won't. For one thing, the much more moderate business expansion that's now foreseen will remove considerable pressure from the prices of many basic commodities. For another, as noted, people will be slow to spend the income they receive. And when the crisis has ended after the markets have settled back down... the Fed will quietly and carefully begin to soak up all the liquidity again.
The inflation rate could end up lower than it was heading for before the financial markets started to give up so much ground.
INTEREST RATES COULD DROP SOMEWHAT FURTHER
INTEREST RATES COULD DROP SOMEWHAT FURTHER for some little time yet, especially if Federal Reserve officials see continued signs of nervousness. As noted, the monetary authorities can be counted on to stay on their course until the financial markets return to stability and a recession fades away. Their inclination to ease up will change only when those conditions are met. It is hard to say when that will be... a matter of weeks... but maybe months.
Short-term rates could readily back up a little when that time arrives-rates on bank loans, commercial paper, Treasury bills. Longer-term rates-on bonds and mortgages-could hold at levels that are well below the high reached before the crisis erupted.
The outlook for the stock market is much murkier to analysts. They see no reason for new sags, given the outlook for steady profits. Lower stock prices
THE LIKELY POLITICAL FALL-OUT FROM THE MARKET CRASH
THE LIKELY POLITICAL FALL-OUT FROM THE MARKET CRASH is also obscure, though that doesn't keep the seers from trying to discern the implications. The Republicans will no doubt suffer from the big blow to confidence, if it effects the economy's behavior. Whether they are actually to blame or not may not really matter. It happened while they controlled the White House. The Democrats, however, may not be able to capitalize on the crisis, if the economy approaches the 1988 elections still advancing, even though slowly, or if they develop no positive program of their own to capture the voters.
MASONRY-NOVEMBER/DECEMBER, 1987 39