Dr. Greenspan: The Economy is on the Mend

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Having toiled at his patient's side all year with a historic string of 11 interest-rate operations in 12 months that brought the fed funds rate from 6 percent to 1.5 percent, Alan Greenspan and his team at the Federal Reserve made one more notation in their chart Wednesday: Patient off medication. Seems to be out of serious danger.

"Signs that weakness in demand is abating and economic activity is beginning to firm have become more prevalent," the Fed said in its accompanying statement. "The degree of any strength in business capital and household spending" is "still uncertain," but with "the forces restraining the economy starting to diminish —the outlook for economic recovery has become more promising."

Call us in March for a checkup. Good luck.

And why not? Consumer confidence and durable goods orders are up, business inventories are falling at a record pace, and Wednesday morning, GDP growth for the last three months of 2001 surprised everybody by posting a 0.2 percent gain. (Yes, gain.) As the Fed said, there are some worries. No one there is expecting a gangbusters upturn this spring — but they're not too worried about a double-dip recession either.

And yet the patient, despite the fervent national concern for its health these past 12 months, does not now find itself in an ideal environment to begin a recovery.

Wall Street, for instance, is down with a pesky case of Enron-itis. The Dow dropped more than 250 points Tuesday as a handful of companies with not-yet-infamous names like Tyco, Global Crossing, Elan and Williams (another energy company with questionable energy earnings) started to positively reek with the scent of Enron. Wednesday, with the economic indications offering some comfort, those investors acknowledged that they might have overreacted a bit, buying the Dow back up 140 and the NASDAQ up 20 by day's end. But Wall Street certainly seems to have delivered its State of the Markets Address for spring — and the state of the markets is a little scared, and a lot suspicious.

The economic problem in all this is that it's traditionally Wall Street's job to usher in an "imminent" recovery with a nice long rally. That was what was supposed to be happening all fall, as the indexes began a long climb up from Sept. 11, and after a December churn the "January effect" looked to have kicked off the process anew — until Enron. Rising stock prices put needed cash in companies' pockets, and they don't hurt consumer confidence either. These are the things this recovery cannot do without — and the Enron fallout, oozing outward daily, is ruining it.

Oh, Washington seems eager to help — everyone in town is making speeches, shuffling papers and declaring war on the business cycle to beat the band. But the night before the Fed was set to send its patient home, George W. Bush, in his State of the Union address, was still leading with "we will defeat this recession." Later, he said the right words about financial reform, and even raised his voice to say that CEOs, of all people, "must be made more accountable to employees and shareholders." But politics made him say it (and get it over with fast), and politics made him immediately go on a post-speech road tour and talk strictly about the war. If the White House has its way, that's the last we'll hear about that.

So it's up to Congress. But the Enron hearings are nowhere near hot enough to produce anything and they've already gotten distracted by campaign finance reform, which is pretty politics but not the fundamental issue that Wall Street needs tackled first. There's economic stimulus — some $75 billion in tax cuts and spending should depart Washington this spring, and maybe even arrive in time to help some people through the next 6-9-12 months of "stealth" recovery. But tax cuts and unemployment insurance isn't what this patient needs most.

It needs its pesky crisis of investor confidence dealt with, honestly and forcefully, and the sooner the better. And perhaps Greenspan, as he heads off to the golf course, fingers crossed, until March, will even stop by Congress one more time — just to gently remind everybody that a few quick, no-nonsense, obvious-to-the-average-CNBC-pundit changes in the law would be just the thing right now. Because if this economic recovery gets tripped up by the Enron fuss now, this doctor doesn't want Congress coming back to him and screaming malpractice.