"Developing protectionism regarding trade and our reluctance to place fiscal policy on a more sustainable path are threatening what may well be our most valued policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks," the Fed chief said in a speech to an economic conference here, sponsored by the Federal Reserve Bank of Kansas City.

Maintaining economic flexibility is especially important, Greenspan said, to deal with what he called some of America's current economic imbalances: the swollen current account trade deficit, which surged to a record $668 billion last year, and the housing boom.

Stock prices and house prices are factors that Fed policy-makers are increasingly needing to consider when setting interest-rate policy. "Our forecasts and, hence policy, are becoming increasingly driven by asset price changes," Greenspan said.

Rising stock and home prices have made households feel more wealthy and has helped to support consumer spending, a key ingredient of the economy's good health. But Greenspan seemed to caution that people shouldn't count on that paper wealth, which can evaporate if economic conditions deteriorate rapidly.

"What they perceive as newly abundant liquidity can readily disappear," he said. "Whether the currently elevated level of wealth-to-income ratio will be sustained in the longer run remains to be seen."

Greenspan said that "fear of change" is behind stalled international trade negotiations and the hesitancy of Congress and the White House to "face up to the difficult choices that will be required to resolve our looming fiscal problems."

__________________
...Tracy

'00 ML320 "Casper"
'92 400E "Stella"

Of course none of these imbalances have anything to do with what he has been doing for the past 18 years.

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Jason Priest
1999 E430
1995 E420 - retired
1986 420SEL - retired