🚀 go-pugleaf

arminius wrote:
> "Lets Roll" <letsroll@meet-me-in-hell.com> wrote in message
> news:pT5ve.8896$jX6.5374@newsread2.news.pas.earthlink.net...
> > 16 February 2005
> >
> >
> > Text: Greenspan Urges U.S. Action on Long-term Economic Challenges
> >
> > Calls for improvements in education, reform of benefits for elderly
> >
> > As the U.S. economic expansion continues, policy-makers must address
> > long-term problems such as the composition of the work force and the
> federal
> > budget deficit to ensure that the economy remains flexible and
> competitive,
> > Federal Reserve Chairman Alan Greenspan says.
> >
> > Testifying February 16 before the Senate Banking Committee, the head of
> the
> > U.S. central bank gave an upbeat assessment of the U.S. economy and its
> > near-term potential.
> >
> > "All told, the economy seems to have entered 2005 expanding at a
> reasonably
> > good pace, with inflation and inflation expectations well-anchored," he
> said
> > delivering the bank's semiannual monetary report to Congress.
> >
> > However, he said that "people experiencing long periods of relative
> > stability are prone to excess" and cautioned against complacency given the
> > economic challenges that will confront U.S. policymakers in coming years.
> >
> > Greenspan cited the composition of U.S. work force as one of those
> problems.
> > He said that technology advances and global competition have diminished
> > demand for less skilled workers and increased demand for highly skilled
> > workers in the United States and other developed countries. However, the
> > supply of the latter in the U.S. economy has failed to keep up with a
> > continued rise in demand, he said.
> >
> > Greenspan called for strengthening elementary and secondary education to
> > prevent a wage gap between skilled and less skilled workers from widening
> > and fueling "resentment and political polarization." He said that such
> > developments could lead to political clashes and misguided economic
> policies
> > and leave the U.S. economy unprepared to compete effectively in the modern
>
> > global marketplace.
> >
> > Greenspan said that an adjustment of the U.S. current account deficit is
> > another challenge. Because an increase in net national savings is central
> to
> > an orderly adjustment, he said that restoring fiscal discipline is
> > imperative.
> >
> > The current account balance is the broadest measure of a country's
> > transactions with the rest of the world.
> >
> > Greenspan reaffirmed his view that public pension and related health care
> > benefits for the elderly will strain the resources of younger workers when
> > large numbers of U.S. workers born after World War II start retiring. He
> > said the sheer number of potential retirees suggests that the problem
> should
> > be addressed sooner rather than later. He cautioned that interest rates on
> > government debt could be affected in the long run if the problem is not
> > dealt with soon enough.
> >
> > President Bush has urged a reform of Social Security, the U.S. public
> > pension system, that would allow 55-year-old and younger workers to
> convert
> > part of their mandatory Social Security contributions into private
> > investment accounts. Although the details of the plan are not yet known,
> the
> > impact of such a change on pension incomes, Social Security and the
> federal
> > budget is being hotly debated.
> >
> > During the hearing, Greenspan said in response to a question that he
> > supports the central concept of the president's plan but urged a cautious
> > approach to its implementation to diminish the risk of destabilizing
> > financial markets.
> >
> > "I think it's a good thing to do over the longer run," he said. "[But] if
> > you are going to move to private accounts, which I approve of, you have to
> > do it in a cautious, gradual way."
> >
> > Greenspan said he believes that long-term U.S. economic challenges will
> > ultimately be met and resolved.
> >
> > Following is the text of Greenspan's testimony as prepared for delivery:
> >
> > (begin text)
> >
> > Federal Reserve Board
> >
> > Testimony of Chairman Alan Greenspan
> > Federal Reserve Board's semiannual Monetary Policy Report to the Congress
> > Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
> > February 16, 2005
> >
> > Mr. Chairman and members of the Committee, I am pleased to be here today
> to
> > present the Federal Reserve's Monetary Policy Report to the Congress. In
> the
> > seven months since I last testified before this Committee, the U.S.
> economic
> > expansion has firmed, overall inflation has subsided, and core inflation
> has
> > remained low.
> >
> > Over the first half of 2004, the available information increasingly
> > suggested that the economic expansion was becoming less fragile and that
> the
> > risk of an undesirable decline in inflation had greatly diminished. Toward
> > midyear, the Federal Reserve came to the judgment that the extraordinary
> > degree of policy accommodation that had been in place since the middle of
> > 2003 was no longer warranted and, in the announcement released at the
> > conclusion of our May meeting, signaled that a firming of policy was
> likely.
> > The Federal Open Market Committee began to raise the federal funds rate at
> > its June meeting, and the announcement following that meeting indicated
> the
> > need for further, albeit gradual, withdrawal of monetary policy stimulus.
> >
> > Around the same time, incoming data suggested a lull in activity as the
> > economy absorbed the impact of higher energy prices. Much as had been
> > expected, this soft patch proved to be short-lived. Accordingly, the
> Federal
> > Reserve has followed the June policy move with similar actions at each
> > meeting since then, including our most recent meeting earlier this month.
> > The cumulative removal of policy accommodation to date has significantly
> > raised measures of the real federal funds rate, but by most measures, it
> > remains fairly low.
> >
> > The evidence broadly supports the view that economic fundamentals have
> > steadied. Consumer spending has been well maintained over recent months,
> > buoyed by continued growth in disposable personal income, gains in net
> > worth, and accommodative conditions in credit markets. Households have
> > recorded a modest improvement in their financial position over this
> period,
> > to the betterment of many indicators of credit quality. Low interest rates
> > and rising incomes have contributed to a decline in the aggregate
> household
> > financial obligation ratio, and delinquency and charge-off rates on
> various
> > categories of consumer loans have stayed at low levels.
> >
> > The sizable gains in consumer spending of recent years have been
> accompanied
> > by a drop in the personal saving rate to an average of only 1 percent over
> > 2004 -- a very low figure relative to the nearly 7 percent rate averaged
> > over the previous three decades. Among the factors contributing to the
> > strength of spending and the decline in saving have been developments in
> > housing markets and home finance that have spurred rising household wealth
> > and allowed greater access to that wealth. The rapid rise in home prices
> > over the past several years has provided households with considerable
> > capital gains. Moreover, a significant increase in the rate of
> single-family
> > home turnover has meant that many consumers have been able to realize
> gains
> > from the sale of their homes. To be sure, such capital gains, largely
> > realized through an increase in mortgage debt on the home, do not increase
> > the pool of national savings available to finance new capital investment.
> > But from the perspective of an individual household, cash realized from
> > capital gains has the same spending power as cash from any other source.
> >
> > More broadly, rising home prices along with higher equity prices have
> > outpaced the rise in household, largely mortgage, debt and have pushed up
> > household net worth to about 5-1/2 times disposable income by the end of
> > last year. Although the ratio of net worth to income is well below the
> peak
> > attained in 1999, it remains above the long-term historical average. These
> > gains in net worth help to explain why households in the aggregate do not
> > appear uncomfortable with their financial position even though their
> > reported personal saving rate is negligible.
> >
> > Of course, household net worth may not continue to rise relative to
> income,
> > and some reversal in that ratio is not out of the question. If that were
> to
> > occur, households would probably perceive the need to save more out of
> > current income; the personal saving rate would accordingly rise, and
> > consumer spending would slow.
> >
> > But while household spending may well play a smaller role in the expansion
> > going forward, business executives apparently have become somewhat more
> > optimistic in recent months. Capital spending and corporate borrowing have
> > firmed noticeably, but some of the latter may have been directed to
> finance
> > the recent backup in inventories. Mergers and acquisitions, though, have
> > clearly perked up.
> >
> > Even in the current much-improved environment, however, some caution among
> > business executives remains. Although capital investment has been
> advancing
> > at a reasonably good pace, it has nonetheless lagged the exceptional rise
> in
> > profits and internal cash flow. This is most unusual; it took a deep
> > recession to produce the last such configuration in 1975. The lingering
> > caution evident in capital spending decisions has also been manifest in
> > less-aggressive hiring by businesses. In contrast to the typical pattern
> > early in previous business-cycle recoveries, firms have appeared reluctant
> > to take on new workers and have remained focused on cost containment.
> >
> > As opposed to the lingering hesitancy among business executives,
> > participants in financial markets seem very confident about the future
> and,
> > judging by the exceptionally low level of risk spreads in credit markets,
> > quite willing to bear risk. This apparent disparity in sentiment between
> > business people and market participants could reflect the heightened
> > additional concerns of business executives about potential legal
> liabilities
> > rather than a fundamentally different assessment of macroeconomic risks.
> >
> > Turning to the outlook for costs and prices, productivity developments
> will
> > likely play a key role. The growth of output per hour slowed over the past
> > half year, giving a boost to unit labor costs after two years of declines.
> > Going forward, the implications for inflation will be influenced by the
> > extent and persistence of any slowdown in productivity. A lower rate of
> > productivity growth in the context of relatively stable increases in
> average
> > hourly compensation has led to slightly more rapid growth in unit labor
> > costs. Whether inflation actually rises in the wake of slowing
> productivity
> > growth, however, will depend on the rate of growth of labor compensation
> and
> > the ability and willingness of firms to pass on higher costs to their
> > customers. That, in turn, will depend on the degree of utilization of
> > resources and how monetary policymakers respond. To date, with profit
> > margins already high, competitive pressures have tended to limit the
> extent
> > to which cost pressures have been reflected in higher prices.
> >
> > Productivity is notoriously difficult to predict. Neither the large surge
> in
> > output per hour from the first quarter of 2003 to the second quarter of
> > 2004, nor the more recent moderation was easy to anticipate. It seems
> likely
> > that these swings reflected delayed efficiency gains from the capital
> goods
> > boom of the 1990s. Throughout the first half of last year, businesses were
> > able to meet increasing orders with management efficiencies rather than
> new
> > hires. But conceivably the backlog of untapped total efficiencies has run
> > low, requiring new hires. Indeed, new hires as a percent of employment
> rose
> > in the fourth quarter of last year to the highest level since the second
> > quarter of 2001.
> >
> > There is little question that the potential remains for large advances in
> > productivity from further applications of existing knowledge, and insights
> > into applications not even now contemplated doubtless will emerge in the
> > years ahead. However, we have scant ability to infer the pace at which
> such
> > gains will play out and, therefore, their implications for the growth of
> > productivity over the longer run. It is, of course, the rate of change of
> > productivity over time, and not its level, that influences the persistent
> > changes in unit labor costs and hence the rate of inflation.
> >
> > The inflation outlook will also be shaped by developments affecting the
> > exchange value of the dollar and oil prices. Although the dollar has been
> > declining since early 2002, exporters to the United States apparently have
> > held dollar prices relatively steady to preserve their market share,
> > effectively choosing to absorb the decline in the dollar by accepting a
> > reduction in their profit margins. However, the recent somewhat quickened
> > pace of increases in U.S. import prices suggests that profit margins of
> > exporters to the United States have contracted to the point where the
> > foreign shippers may exhibit only limited tolerance for additional
> > reductions in margins should the dollar decline further.
> >
> > The sharp rise in oil prices over the past year has no doubt boosted
> firms'
> > costs and may have weighed on production, particularly given the sizable
> > permanent component of oil price increases suggested by distant-horizon
> oil
> > futures contracts. However, the share of total business expenses
> > attributable to energy costs has declined appreciably over the past thirty
> > years, which has helped to buffer profits and the economy more generally
> > from the adverse effect of high oil and natural gas prices. Still,
> although
> > the aggregate effect may be modest, we must recognize that some sectors of
> > the economy and regions of the country have been hit hard by the increase
> in
> > energy costs, especially over the past year.
> >
> > Despite the combination of somewhat slower growth of productivity in
> recent
> > quarters, higher energy prices, and a decline in the exchange rate for the
> > dollar, core measures of consumer prices have registered only modest
> > increases. The core PCE and CPI measures, for example, climbed about 1-1/4
> > and 2 percent, respectively, at an annual rate over the second half of
> last
> > year.
> >
> > All told, the economy seems to have entered 2005 expanding at a reasonably
> > good pace, with inflation and inflation expectations well anchored. On the
> > whole, financial markets appear to share this view. In particular, a broad
> > array of financial indicators convey a pervasive sense of confidence among
> > investors and an associated greater willingness to bear risk than is yet
> > evident among business managers.
> >
> > Both realized and option-implied measures of uncertainty in equity and
> > fixed-income markets have declined markedly over recent months to quite
> low
> > levels. Credit spreads, read from corporate bond yields and credit default
> > swap premiums, have continued to narrow amid widespread signs of an
> > improvement in corporate credit quality, including notable drops in
> > corporate bond defaults and debt ratings downgrades. Moreover, recent
> > surveys suggest that bank lending officers have further eased standards
> and
> > terms on business loans, and anecdotal reports suggest that securities
> > dealers and other market-makers appear quite willing to commit capital in
> > providing market liquidity.
> >
> > In this environment, long-term interest rates have trended lower in recent
> > months even as the Federal Reserve has raised the level of the target
> > federal funds rate by 150 basis points. This development contrasts with
> most
> > experience, which suggests that, other things being equal, increasing
> > short-term interest rates are normally accompanied by a rise in
> longer-term
> > yields. The simple mathematics of the yield curve governs the relationship
> > between short- and long-term interest rates. Ten-year yields, for example,
> > can be thought of as an average of ten consecutive one-year forward rates.
> A
> > rise in the first-year forward rate, which correlates closely with the
> > federal funds rate, would increase the yield on ten-year U.S. Treasury
> notes
> > even if the more-distant forward rates remain unchanged. Historically,
> > though, even these distant forward rates have tended to rise in
> association
> > with monetary policy tightening.
> >
> > In the current episode, however, the more-distant forward rates declined
> at
> > the same time that short-term rates were rising. Indeed, the tenth-year
> > tranche, which yielded 6-1/2 percent last June, is now at about 5-1/4
> > percent. During the same period, comparable real forward rates derived
> from
> > quotes on Treasury inflation-indexed debt fell significantly as well,
> > suggesting that only a portion of the decline in nominal forward rates in
> > distant tranches is attributable to a drop in long-term inflation
> > expectations.
> >
> > Some analysts have worried that the dip in forward real interest rates
> since
> > last June may indicate that market participants have marked down their
> view
> > of economic growth going forward, perhaps because of the rise in oil
> prices.
> > But this interpretation does not mesh seamlessly with the rise in stock
> > prices and the narrowing of credit spreads observed over the same
> interval.
> > Others have emphasized the subdued overall business demand for credit in
> the
> > United States and the apparent eagerness of lenders, including foreign
> > investors, to provide financing. In particular, heavy purchases of
> > longer-term Treasury securities by foreign central banks have often been
> > cited as a factor boosting bond prices and pulling down longer-term
> yields.
> > Thirty-year fixed-rate mortgage rates have dropped to a level only a
> little
> > higher than the record lows touched in 2003 and, as a consequence, the
> > estimated average duration of outstanding mortgage-backed securities has
> > shortened appreciably over recent months. Attempts by mortgage investors
> to
> > offset this decline in duration by purchasing longer-term securities may
> be
> > yet another contributor to the recent downward pressure on longer-term
> > yields.
> >
> > But we should be careful in endeavoring to account for the decline in
> > long-term interest rates by adverting to technical factors in the United
> > States alone because yields and risk spreads have narrowed globally. The
> > German ten-year Bund rate, for example, has declined from 4-1/4 percent
> last
> > June to current levels of 3-1/2 percent. And spreads of yields on bonds
> > issued by emerging-market nations over U.S. Treasury yields have declined
> to
> > very low levels.
> >
> > There is little doubt that, with the breakup of the Soviet Union and the
> > integration of China and India into the global trading market, more of the
> > world's productive capacity is being tapped to satisfy global demands for
> > goods and services. Concurrently, greater integration of financial markets
> > has meant that a larger share of the world's pool of savings is being
> > deployed in cross-border financing of investment. The favorable inflation
> > performance across a broad range of countries resulting from enlarged
> global
> > goods, services and financial capacity has doubtless contributed to
> > expectations of lower inflation in the years ahead and lower inflation
> risk
> > premiums. But none of this is new and hence it is difficult to attribute
> the
> > long-term interest rate declines of the last nine months to glacially
> > increasing globalization. For the moment, the broadly unanticipated
> behavior
> > of world bond markets remains a conundrum. Bond price movements may be a
> > short-term aberration, but it will be some time before we are able to
> better
> > judge the forces underlying recent experience.
> >
> > This is but one of many uncertainties that will confront world
> policymakers.
> > Over the past two decades, the industrial world has fended off two severe
> > stock market corrections, a major financial crisis in developing nations,
> > corporate scandals, and, of course, the tragedy of September 11, 2001. Yet
> > overall economic activity experienced only modest difficulties. In the
> > United States, only five quarters in the past twenty years exhibited
> > declines in GDP, and those declines were small. Thus, it is not altogether
> > unexpected or irrational that participants in the world marketplace would
> > project more of the same going forward.
> >
> > Yet history cautions that people experiencing long periods of relative
> > stability are prone to excess. We must thus remain vigilant against
> > complacency, especially since several important economic challenges
> confront
> > policymakers in the years ahead.
> >
> > Prominent among these challenges in the United States is the pressing need
> > to maintain the flexibility of our economic and financial system. This
> will
> > be essential if we are to address our current account deficit without
> > significant disruption. Besides market pressures, which appear poised to
> > stabilize and over the longer run possibly to decrease the U.S. current
> > account deficit and its attendant financing requirements, some forces in
> the
> > domestic U.S. economy seem about to head in the same direction. Central to
> > that adjustment must be an increase in net national saving. This serves to
> > underscore the imperative to restore fiscal discipline.
> >
> > Beyond the near term, benefits promised to a burgeoning retirement-age
> > population under mandatory entitlement programs, most notably Social
> > Security and Medicare, threaten to strain the resources of the working-age
> > population in the years ahead. Real progress on these issues will
> > unavoidably entail many difficult choices. But the demographics are
> > inexorable, and call for action before the leading edge of baby boomer
> > retirement becomes evident in 2008. This is especially the case because
> > longer-term problems, if not addressed, could begin to affect longer-dated
> > debt issues, the value of which is based partly on expectations of
> > developments many years in the future.
> >
> > Another critical long-run economic challenge facing the United States is
> the
> > need to ensure that our workforce is equipped with the requisite skills to
> > compete effectively in an environment of rapid technological progress and
> > global competition. Technological advance is continually altering the
> shape,
> > nature, and complexity of our economic processes. But technology and, more
> > recently, competition from abroad have grown to a point at which demand
> for
> > the least-skilled workers in the United States and other developed
> countries
> > is diminishing, placing downward pressure on their wages. These workers
> will
> > need to acquire the skills required to compete effectively for the new
> jobs
> > that our economy will create.
> >
> > At the risk of some oversimplification, if the skill composition of our
> > workforce meshed fully with the needs of our increasingly complex capital
> > stock, wage-skill differentials would be stable, and percentage changes in
> > wage rates would be the same for all job grades. But for the past twenty
> > years, the supply of skilled, particularly highly skilled, workers has
> > failed to keep up with a persistent rise in the demand for such skills.
> > Conversely, the demand for lesser-skilled workers has declined, especially
> > in response to growing international competition. The failure of our
> society
> > to enhance the skills of a significant segment of our workforce has left a
> > disproportionate share with lesser skills. The effect, of course, is to
> > widen the wage gap between the skilled and the lesser skilled.
> >
> > In a democratic society, such a stark bifurcation of wealth and income
> > trends among large segments of the population can fuel resentment and
> > political polarization. These social developments can lead to political
> > clashes and misguided economic policies that work to the detriment of the
> > economy and society as a whole. As I have noted on previous occasions,
> > strengthening elementary and secondary schooling in the United States --
> > especially in the core disciplines of math, science, and written and
> verbal
> > communications -- is one crucial element in avoiding such outcomes. We
> need
> > to reduce the relative excess of lesser-skilled workers and enhance the
> > number of skilled workers by expediting the acquisition of skills by all
> > students, both through formal education and on-the-job training.
> >
> > Although the long-run challenges confronting the U.S. economy are
> > significant, I fully anticipate that they will ultimately be met and
> > resolved. In recent decades our nation has demonstrated remarkable
> > resilience and flexibility when tested by events, and we have every reason
> > to be confident that it will weather future challenges as well. For our
> > part, the Federal Reserve will pursue its statutory objectives of price
> > stability and maximum sustainable employment -- the latter of which we
> have
> > learned can best be achieved in the long run by maintaining price
> stability.
> > This is the surest contribution that the Federal Reserve can make in
> > fostering the economic prosperity and well-being of our nation and its
> > people.
> >
> > (end text)
> >
> > http://chennai.usconsulate.gov/wwwhpr050217a.html
> >
> > And Bush wants to import more illiterate, unskilled third world rejects.
> >
> >

I'm sorry but I didn't find the part where Greenspan says that
unskilled labor damages the US. Could someone point out the paragraph
for me?