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Economists: Greenspan too optimistic
2005-03-08 05:23:39 XinhuaEnglish

BEIJING, Mar. 8-- When it comes to the US savings rate, Federal Reserve Chairman Alan Greenspan may be engaging in a little"irrational exuberance."

Greenspan says Americans are poised to start socking away more savings, cushioning their own future and helping the US economy at the same time. He may be optimistic, say economists including Robert Shiller, a professor at Yale University in New Haven, Connecticut, and the author of the 2000 book"Irrational Exuberance," about the 1990s stock boom and the phrase Greenspan made famous.

Concerning an increase in the savings rate, Shiller says,"I don't see any suggestion of it right now." Efforts to encourage savings"haven't been a big success," he says.

Greenspan told the House Financial Services Committee on February 17 that the national savings rate,"is probably going to prove a low point, and we will start to rise from here." Central bankers care because Americans' appetite to spend their money or invest in housing, rather than to build deposits that banks spread through the economy as loans, means the United States needs to rely more on an influx of foreign cash.

The dependence on overseas money bloats the nation's current account deficit and raises the risk that the US dollar's value may plunge precipitously if foreign investors shy away, says Desmond Lachman, a former International Monetary Fund economist.

"This is just an accident waiting to happen," says Lachman, who is now at the American Enterprise Institute, a research group in Washington that counts among its scholars former US House Speaker Newt Gingrich; R. Glenn Hubbard, former chairman of US President George W. Bush's Council of Economic Advisers; Lynne Cheney, wife of US Vice-President Dick Cheney; and Jeane Kirkpatrick, US ambassador to the United Nations under former US President Ronald Reagan.

Reversing the federal deficit or revamping Social Security to bring its costs into line with revenues ultimately might help the national savings rate, economists say; neither seems likely to happen soon. Greenspan told the Senate Banking Committee on February 16 that the private accounts Bush has proposed will not add to national savings because they will be financed by government borrowing."It doesn't add, but it doesn't subtract, either," he said of the proposal.

"The chances that there'll be any increase in national savings over the next few years is zero," says Barry Bosworth, a senior economist at the Brookings Institution in Washington, who served as director of the President's Council on Wage and Price Stability during the administration of Democratic President Jimmy Carter."We've ended up trying almost everything we can think of, from tax incentives for saving to plans for cutting back federal borrowing, and it still hasn't pushed the savings rate up."

Greenspan said that the increase in US house prices may abate, prompting Americans to begin saving more income rather than pouring money into home mortgages that later are refinanced to get cash for spending.

(Source: China Daily/by Art Pine and Joseph Richter)

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