September 27, 2002
I Cannot Stand It

I Cannot Stand It

Paul O'Neill "dismissed a wary communiqué from the Federal Open Market Committee on Tuesday that suggested significant downside risks to the economic recovery as 'bureaucratic'."

I understand that many Treasury Secretaries believe that if they say that the outlook is "mixed" people will conclude that they think the outlook is horrible. But I would have thought it would be more important for a Treasury Secretary to avoid conveying the message that he just doesn't understand what the Federal Reserve is talking about.


O'Neill: Economy is just fine: On war costs: We should put no price on freedom

By Rex Nutting, CBS.MarketWatch.com
Last Update: 5:06 PM ET Sept. 25, 2002

WASHINGTON (CBS.MW) - The U.S. economy is recovering nicely despite the "bumpy" patch it's going through right now, Treasury Secretary Paul O'Neill said Wednesday.

Citing low interest rates, low inflation, falling unemployment rates, and strong housing and auto sales, O'Neill said he hasn't "seen anything that discourages me" from his forecast of 3 to 3.5 percent growth this year.

O'Neill dismissed a wary communiqué from the Federal Open Market Committee on Tuesday that suggested significant downside risks to the economic recovery as "bureaucratic."

He termed movements in the stock market as mere "shadows on the wall" that don't matter as long as everyone in the nation works hard at creating more value with fewer resources.

"Over a reasonable period of time, I believe that financial markets reflect the real value created by the economy," he said.

The nation doesn't need any further fiscal stimulus, he said. The best thing for job growth would be passage of a terror insurance bill that would put a federal guarantee on catastrophic losses from a further terrorist attack.

Congress must also approve legislation to create the Homeland Security Department and pass pension protection legislation, he said.

During a wide-ranging news conference, O'Neill bristled at the suggestion that uncertainty about a war with Iraq and the possible costs of such a war were weighing on financial markets.

"Iraq is about freedom," he said. "Freedom doesn't have an acceptable price limit."

O'Neill promised that he'd deliver his ideas for fundamental tax reform to President Bush within the next eight weeks or so. He denied that the administration had backed off on new tax cuts for this session of Congress.

He said he has no plans to step down after the midterm elections. "I'm having a good time," he said.

Rex Nutting is Washington bureau chief of CBS.MarketWatch.com.
Posted by DeLong at September 27, 2002 11:58 AM | Trackback

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Can hardly wait until we find out what the next set of tax cut proposals are.

Posted by: on September 27, 2002 12:14 PM

My O'Neill'O'Matic Decoder Ring translates this as "Sure we're clueless ... you got a problem with that?".

Regretting for the umpteenth time my error in nominating him as likely MVP in the original Bush Cabinet.

Posted by: RonK, Seattle on September 27, 2002 12:31 PM

How about this as an attempt to say something nice about O'Neill: "at least he's not John Ashcroft"?

Posted by: richard on September 27, 2002 12:36 PM

'The nation doesn't need any further fiscal stimulus, he said. The best thing for job growth would be passage of a terror insurance bill that would put a federal guarantee on catastrophic losses from a further terrorist attack.'

If federal coverage of terrorism losses makes you less worried about investment exposure due to possible terrorist attacks, you spend more on investment. If you spend more on investment then you spend less on consumption.

The problem of the current recession, however, is insufficient aggregate demand. Therefore, increasing investment by passing a terror insurance bill should prolong the recession.

Am I missing something?

Posted by: Jason McCullough on September 27, 2002 02:03 PM

O'Neill said he hasn't "seen anything that discourages me" from his forecast of 3 to 3.5 percent growth this year.

-- Oh really? Maybe he should take a walk through San Francisco or Silicon Valley and get a better view. There is plenty to be discouraged about, believe me, especially the jobless rate.

Posted by: Janet on September 27, 2002 03:38 PM

Lord knows O'Neill's Homer Simpsonesque musings are often good for a laugh among us wonks.

But I think it is brutally unfair to crucify him over one word - bureaucratic - that a reporter for a second-tier financial news outlet lifted to use for a quote.

Posted by: George Zachar on September 27, 2002 03:53 PM

At least he isn't Lloyd Bentsen.

Posted by: Brian on September 28, 2002 07:02 AM

Indeed, Janet. Last time I took a cab at SFO, the cab driver was Indian. So far, nothing unusual. But he later told us that he has an electric engineering degree and immigrated to the US to work as a software programmer... until he lost his job and cab driving is all he could find...

Posted by: Jean-Philippe Stijns on September 28, 2002 05:43 PM

Though the recession was thought to be quite mild, the effects are much on a par with typical recessions since 1946.

Posted by: on September 29, 2002 10:34 AM

I think it's a bit more serious than the typical recession. Best case is a jobless recovery a la the early 90's. Middle case is equivalent strength to the early 80's messup. Worst case is a depression, not a recession. This isn't played out yet - the housing bubble is still to burst. And arguably we have a consumer consumption bubble as well. Further, the markets are close to the Ohmstead break number, where the decline turns into a vicious circle. Contrary to O'Neill's muttering the market is not mere "shadows on the wall" it has real effects on wealth, disposable income and available capital and the market collapse has already had significant effects on the real economy. A further collapse will have further effects. Worse effects than we've had so far - because more real wealth will be destroyed, not just paper profits.

Posted by: Ian Welsh on September 29, 2002 11:42 AM

Don't worry, Ian, a war on Irak will boost energy companies' bottom line, which we know is all this economy is about... (unless you live in Texas or Alaska...)

And sucking up all national savings for military purposes will sure help jump start investment...

These guys don't have clue or they actually don't care about the American economy (not to mention the global economy), or both. It's scary. This is exactly the type of guys you need to turn a mild recession into a disaster (personally, to begin with, I have never thought this recession is such a shallow and temporary thing as was originally trumpeted.) I just wish we are wrong...

Posted by: Jean-Philippe Stijns on September 29, 2002 09:11 PM
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