University Daily Kansan / Wednesday, October 21, 1987
9
Nation/World
Reagan reassures U.S. of economic stability
The Associated Press
WASHINGTON — President Reagan, buoyed by the partial recovery of the stock market, declared yesterday. "There is nothing that has happened here that should result in a recession."
"Economic fundamentals in this country remain sound and our citizens should not panic." Reagan said after a meeting with Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary James A. Baker III to discuss the chaos gripping the stock market after Monday's record 508-point collapse.
The Dow Jones industrial average regained some of its historic loss, rising 102 points yesterday.
The president noted that he signed an order yesterday implementing the automatic spending cuts under the Gramm-Rudman deficit situation law, but said he would prefer that the
administration and congressional leaders negotiate an agreement to reduce the red ink.
Reagan appeared to soften his opposition to both a tax increase and to a "budget summit" long advocated by congressional Democrats, Reagan's words sinistered a change of position.
"I am willing to participate in anything that will bring us together," Reagan told reporters as he left the White House to visit his wife in the hospital.
As for Democratic demands that he accept a tax increase as a means of reducing the defect, Reagan said, "I am willing to look at whatever proposal they might have."
Afterwards, White House spokesman Marlin Fitzwater said, "I wouldn't count on Ronald Reagan ever being amenable to tax increases." On the budget summit, Fitzwater said Reagan would direct top members of his staff to meet with congressional leaders but
that Reagan did not envision himself getting involved personally.
Reagan praised the action of the Federal Reserve earlier in the day making emergency-loan money more readily available to the government, saying it had "a salutary effect on the markets."
"There is nothing that has happened here that should result in a recession," he said.
He also said that he had been in close touch with leaders of other major industrial nations.
Regan denied a projection, prepared by a senior White House economic adviser, that the nation might face a recession as early as next spring and a dramatic reversal of the stock market plunge.
"It's pretty hard for anyone to speculate on that," Reagan added, when pressed by reporters. "I don't know if he would be if the people of this country ignored the economic signs and then if you had people
begin putting off purchases . . . because they feared hard times."
"Yes, that could bring on a recession," he said.
The new informal projection, circulated internally, suggested that the damage done to the economy by the stock market plummet might be too deep to correct, said an administration official who spoke only on the condition of anonymity.
The projection was prepared Monday evening, before yesterday's market developments.
Reagan said he was pleased that the bond market showed strength yesterday, and that the economy was strong.
Reagan also reaffirmed his administration's commitment to a February 1987 agreement among the world's major industrial nations to hold the U.S. dollar steady against other currencies at "current levels."
Market
Continued from p.1
ner in Levy Economic Forecasts of Chamaqua, N.Y.
The Dow's plunge Monday wiped out 22.6 percent of the index's value, a bigger one-day decline, both in absolute and percentage terms, than in the crash of 1929. All U.S. stocks combined lost more than $500 billion in value as a result of Monday's plunge.
"I think everyone has been caught to surprise in this." President Reagan said.
Presidential spokesman Marlin Fitzwater said the administration was consulting with investment leaders around the country. After conferring by telephone Monday with White House chief of staff Howard Baker, Treasury Secretary James Baker cut short a visit to Sweden to return to the United States to monitor financial developments.
The Federal Reserve helped buoy the hard-hit financial markets by saying it stood ready to support them with injections of reserves. Fresh money could prevent the stock market's plunge from spreading to the rest of the economy.
The markets also took comfort from an announcement by West German authorities that was interpreted as not allow their interest rates to rise.
A big rise in foreign interest rates would hurt the United States by pushing down the dollar, thus triggering inflation, or pushing up U.S. interest rates, possibly causing a recession.
Two U.S. banks that had raised their prime rates last week, Chemical Bank and Marine Midland, rolled back their increases to the general level of 9.25 percent. The prime rate is used as a benchmark for a variety
The Dow's bumpy rebound
In other indicators...
In the overall NYSE, losers outnumbered gainers by 13-5; Bonds soared, with the 30-year Treasury yield falling to 9.5 percent.
- Key indexes of the Tokyo and London exchanges posted their biggest losses ever.
and Japanese yen;
The dollar rose sharply in value against the West German mark
Gold billion was bid at $464.50
at 3 p.m., down nearly $20 an ounce from late Monday. Gold had
jumped $15 an ounce Monday.
founded $15 an ounce monday.
Two banks that had raised their prime rates last week, Chemical Bank and Marine Midland, rolled back the increases to the general level of 9.25 percent.
of consumer and business loans
Knicht-Ridder Graphic
Money poured into U.S. Treasury securities and knocked nearly a percentage point of the yield on the 3-month Treasury bill. The yield on the bail, a haven in times of trouble, fell from 1.08% last day, from 6.82 percent late Monday.
Investors also flocked to the benchmark 30-year Treasury bond, apparently believing that high inflation was less likely to erode the value of fixed-income securities.
Gold prices lost about $2.50 an ounce after running up Monday to their highest point in more than four years.
The dollar rose to 144.3 Japanese yen from 141.475 and to 1.8125 West German marks from 1.7721 late Monday.
Economists agree on crash's effects
The Associated Press
NEW YORK — Even if the stock market bounces back from the crash of 1987, as it began to do yesterday, apprehension may affect the future behavior of consumers, businesses and foreign investors for months to come.
Economists said yesterday that this anxiety could bring sharp cutbacks in consumer spending and lead to stark new perceptions that the economy is not ready to budget and trade deficits are uncontrolled and the government is weak.
"There is a strong relationship between changes in consumer confidence and changes in the real economy," said Richard Curtin, an economist at the University of Michigan's Survey Research Center, which pioneered the concept of consumer confidence 40 years ago.
"There's no question that the kind of drastic and abrupt drop the stock market took will affect consumer sentiment."
Spending on large items such as homes, cars and household durables, most of which involve the use of pesticides, be especially vulnerable, he said.
E. Scott Maynes, a consumer economics professor at Cornell University defined consumer confidence as the perception of both personal and general economic well-being.
"The essentially puts your future income up against these purchases," Curtin said. "When people become concerned about the course of the economy, they're less willing to incur this new debt."
"You don't have to own stock to be concerned about what happened in the stock market," he said. If the stock market falls down, consumer confidence may collapse as well and trigger a recession, he said.
Stephen Brobeck, executive director of the Consumer Federation of America, the nation's largest consumer advocacy organization, said he believed most consumers see no direct relationship between the stock market and their own welfare but they will become generally more apprehensive.
"I think the stock market plunge brought home to consumers the fact that as a country we're living beyond our means and that they, as well as the federal government and business, must take responsibility for solving the problem." Brobeck said.
Likewise, there is some concern that the nation's businesses could lose confidence in the economy because of the stock crash, principally because they believe it portends an era of sharply higher interest rates.
A pair of big banks that raised their prime rates a week ago scaled them back yesterday to the 9.25 percent level that has prevailed elsewhere in the banking industry since early October.
The Federal Reserve Board, meanwhile, reassured the markets that it stood ready to maintain liquidity in the financial system.
The trend toward lower rates was evident in the government securities market.
Some analysts said the developments could lead banks to lower their prime rates during the next few weeks, which could lead to lower on a range of business and consumer loans, including mortgages.
"We've seen a steady stream of investable funds going into the Treasury market all day," said Ward McCarthy, chief financial economist for the investment firm Merrill Lynch.
He said the money was coming from the stock and the commodity markets because of investors' concern about the risk of the Treasury as a safer market.
Fed ready to keep financial liquidity
NEW YORK - Interest rates in the government securities market tumbled yesterday as investors frightened by swings in stock prices sought the safer haven of Treasury issues.
The heavy buying sent yields lower on three-month Treasury securities, which pushed toward 7.5 percent last week but were at a 5.8 percent late yesterday afternoon after trading as low as 5.2 percent earlier in the day.
Long-term yields also pushed lower as rates on 30-year Treasury bonds, which were more than 10.2 percent in early 2018 and 9.5 percent by late afternoon after trading as low as 9.0 percent earlier in the day.
Some analysts said the decline in yields in the long-term market reflected speculation that the $500 billion stock market free fall on Monday increased fears of a recession while dimissional worries about inflation.
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