-------------------------
Via Workers World News Service
Reprinted from the Dec. 19, 1996
issue of Workers World newspaper
-------------------------

Why Fed head's remark worried Wall Street

By David Perez

In a speech to the American Enterprise Institute on the evening of Dec. 4, Federal Reserve Chair Alan Greenspan hinted that the current upswing in the U.S. stock market represents "unduly escalated asset values."

The next morning, a stock sell-off stampede hit Wall Street.

The Dow Jones Average, the indicator of stock values, dropped almost 140 points. Values of stocks in Japan and Germany fell 3 percent.

While these numbers might not sound big to the average worker, they amount to tens of billions of dollars in losses. Such is the wealth that is traded, bought and sold on the stock market roulette wheels.

It might seem ludicrous for investors to panic merely because a banker said he was worried. But Greenspan is not just any banker.

He heads the Federal Reserve Bank, often called "the bankers' bank." Indeed, the Federal Reserve is one of the most powerful financial institutions in the country.

It is also highly secretive, a virtual invisible government unto itself.

At least with the CIA, it's possible to get a glimmer of what goes on inside when a major scandal is revealed, as with the recent revelations of CIA drug running in the oppressed communities. Not so with the Federal Reserve.

Its deliberations are shrouded in secrecy. Greenspan's "public" appearances are few and far between, and they're usually before Congress or some high finance grouping.

So when Greenspan speaks, Wall Street indeed listens-raptly. His warning about the stock market reflected the financial oligarchy's concern that current stock values are like a bubble waiting to burst.

In other words, Greenspan voiced fear that the overly bullish market is not based in reality. On that he is correct.

By Dec. 6, however, the markets had stabilized. What brought them back up?

In part, it was reported to be a reaction to a Labor Department report that unemployment rose from 5.2 percent to 5.4 percent in October.

Simply put, more people losing their jobs was welcome news to the elite gamblers on Wall Street. Stocks went back up.

But Greenspan's comments had fulfilled another duty as well.

Worries about a crash

As they say in big business, "timing is everything."

Why did Greenspan choose this moment to express his concern? Why not just cautiously watch the market and wait for the eventual stock sell-off?

One reason is that if the sell-off didn't occur until January at the earliest, the capital-gains tax on stock sales would not be collectible until 1998. A sell-off before the end of the year means the revenue would be subject to taxes that must be paid in 1997.

Greenspan, therefore, acted as both banker and government tax collector.

He knows that the U.S. bourgeoisie is a worried bunch. Capitalist economic stability cannot last forever.

In fact, there are signs that a crisis of overproduction may be on the way.

Fred R. Bleakley wrote in the Oct. 21 Wall Street Journal: "The economy was perking along and paper prices were hitting record highs early last year as Union Camp Corp. began reaping the benefits of a big expansion plan. Four years earlier it had installed some of the biggest, newest machines to increase its capacity by one third. The orders were rolling in.

"There was only one problem: Other paper companies had the same idea."

The result: A drop in prices and profits, accompanied by overstocked inventory-what the Journal called "excess capacity."

This is a classic example of capitalist overproduction. And as the Journal article points out, most U.S. businesses are in the same predicament as the paper industry.

So when Greenspan hints that stock prices are inflated and a tad unreal, he's not just waxing philosophical.

He's voicing the very real worries of the capitalist ruling class.

- END -

(Copyright Workers World Service: Permission to reprint granted if source is cited. For more information contact Workers World, 55 W. 17 St., NY, NY 10011; via e-mail: ww@wwpublish.com. For subscription info send message to: ww-info@wwpublish.com. Web: http://www.workers.org)

Copyright © 1996 workers.org