Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.news From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Clinton plan OK with Fed Date: Thu, 12 Nov 92 14:51:51 EST Message-ID: \SE A;NATION;NEWS ANALYSIS \HD Clinton plan OK with Fed \SH Greenspan would tolerate spending \BY Donald Lambro \CR THE WASHINGTON TIMES Federal Reserve Chairman Alan Greenspan seems to be telling President-elect Bill Clinton that he's willing to accept more deficit spending to stimulate the economy as long as former Fed Chairman Paul Volcker is not part of the deal. That is the view of well-informed watchers and people who talked to Mr. Greenspan after The Washington Post published a story yesterday saying "key" Fed officials were giving Mr. Clinton the green light for short-term spending increases to get the economy growing. The Fed members, who were not named, indicated that the Federal Reserve Board would welcome such stimulative spending measures if steps were taken to reduce the deficit in the longer term. That appeared to run counter to the Fed's belief that too much deficit spending will refuel inflation and raise interest rates, a fear that spooked the bond market and has raised anxieties throughout the financial markets. Fed watchers said yesterday that they believed the apparent change of positions was being floated by Mr. Greenspan. "That was Alan Greenspan sending a message: Please don't name Paul Volcker to Treasury," said a prominent economic consultant who is close to several members of the Fed and did not want to be named. "Greenspan doesn't want Volcker second-guessing him on monetary policy every day of the week." Mr. Greenspan was not available for comment yesterday. Sources within the Clinton campaign say Mr. Volcker's name was brought up as a possible candidate for Treasury secretary during a meeting of top Clinton advisers two weeks before the election. People who attended that meeting say the idea was pushed strongly by Roger Altman, a Wall Street investment banker who has himself been mentioned as a possible choice for Treasury. The reasoning behind naming Mr. Volcker to the key Cabinet post was to reassure the business community at a time when interest rates were rising on fears that Mr. Clinton's spending proposals would worsen the deficit. Texas Sen. Lloyd Bentsen's name was also proposed at this meeting. "But in the end they won't turn to Volcker because the bond market is relatively stable now and the heat's off," said an analyst close to some of Mr. Clinton's top economic advisers. The emerging consensus among some Clinton advisers was that the top economic post would go to either Mr. Altman or Bob Rubin, co-chairman of Goldman Sachs investment bankers. Nevertheless, there appeared to be a wide difference of opinion at the Fed about what impact Mr. Clinton's tax-and-spending stimulus would have on the economy, according to sources with close ties to Fed officials. Mr. Greenspan was said by one associate to believe that Mr. Clinton "is going to pursue a stimulus package anyway, so why not try it?" The Fed chairman was described as frustrated that the Fed's interest-rate reductions, which have pushed rates to 20-year lows, have not triggered a stronger economic recovery. And many Fed officials now believe that inflation is so low and the economy so weak that it could easily absorb a spending stimulus without triggering higher interest rates. That was not the view throughout the Fed, according to Fed sources. At least two members of the Federal Reserve Board, Lawrence Lindsey and David Mullins Jr., were said to be worried that the fiscal stimulus package passed by Congress early next year would not have any economic impact until 1994 and that the resulting rise in the deficit would quickly force up interest rates without a corresponding stimulus in the economy. But Fed sources said that view was in a minority on the board and more members appeared to agree with Mr. Greenspan's view. Elsewhere in the business community, though, economists remained nervous about a too-strong stimulus package that would add to the $300-billion-a-year deficit. Savings and loan executives and economists meeting yesterday in San Diego, for example, said mortgage rates could begin falling again if Mr. Clinton proves that he is not going to worsen the budget deficit. Described as "nervous over what Clinton might do," the bankers and economists said he must combine his plan to stimulate the economy with a credible plan to reduce the deficit. Yet Martin Regalia, chief economist for the trade group, said Mr. Clinton would resist efforts by his party's liberals for big spending proposals and keep his plan relatively moderate. This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM