Greenspan Sees Benefits from Sharp Market Drop
WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan told Congress Wednesday the stock market's sharp drop may well prove "a salutary event" and should help extend the economy's 6 1/2-year expansion.
Are stocks still overpriced? "Things are less out of line, certainly, than they would have been," he said as Wall Street's rebound continued.
After months of warnings extending back to his December talk of "irrational exuberance," Greenspan put a positive spin on Monday's wrenching 554-point decline followed by Tuesday's 337-point rebound in the Dow Jones industrial average. "It is quite conceivable that a few years hence we will look back at this episode, as we now look back at the 1987 crash, as a salutary event," he told Congress' Joint Economic Committee. In 1987, the 22.6 percent Black Monday crash -- slightly more than triple Monday's decline in percentage terms -- neutralized inflationary excesses then building in the economy, he said. Monday's drop, provided markets settle down, "should help prolong our 6 1/2-year business expansion," he said. By leaving investors less wealthy, the stock decline should dampen consumer spending, which has fueled unsustainably fast job growth that could lead to inflation. Though U.S. economic growth is robust and inflation low, stocks fell because investors grew too optimistic about future profits, he said. Currency crises in Southeast Asia touched off the drop, but U.S. stocks "were primed to adjust" anyway, he said. "If it was not developments in Southeast Asia, something else would have been the proximate cause for a re-evaluation," he said. The Asian currency turmoil that began in July also should have a "modest but not negligible" impact on the U.S. economy by muting export sales to the region, Greenspan said. He said it was important for the United States and multinational lending agencies such as the International Monetary Fund to help the region. The soothing tone of his remarks couldn't have been more different from his Oct. …