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"A View From Across The Pond" an Englishman's personal view of the week's news in the USA - from Erithacus

As George W Bush settles into his new job at The White House, two of his key policies have been given a seal of approval by Federal Reserve Chairman Alan Greenspan. The all-important program of tax cuts promised in Mr Bush’s electoral campaign and thought by some to generally meet with Alan Greenspan’s disapproval now has a very positive thumbs-up, as has the plan to privatise Social Security. Amid fury from some Democrats, Greenspan’s only words of caution were to advise care in crafting the cuts, suggesting that they should be phased in over a number of years, and advising that some at least should be conditional on the projected budget surplus materialising. In fact, the indications remain that a budget surplus greater than $5 trillion over the next ten years would have resulted if taxes were not cut dramatically, and this in itself would have brought serious problems.

Despite the clear agreement of tax policy between the President and the Federal Reserve, the stockmarkets failed to be impressed or to raise their flagging spirits significantly. Blue Chip stocks fell again on Friday, although the Dow Jones index had climbed .7% for the week when it closed at 10,659.98. It remains 1.2% down this year. Technology stocks are now faring somewhat better, and although the Nasdaq gained only .4% in the week it is 12.6% up so far this year, and its close at 2,781.30 is already higher than some had predicted it would manage for the whole 12 months from January 2001. Predictions from the Federal Reserve still indicate a dramatic slowing in economic growth to around half the level of recent years, and this has muted investors’ response to the likelihood of return of consumer confidence sparked by tax cutting. Although a half-percent cut in interest rates seems almost certain to follow the Federal Reserve’s policy-setting meeting now less than a week away, this has already been anticipated and taken into account in prices of leading stocks. The two technology leaders IBM and Microsoft did, however, both climb this week, helping to offset the effect on the Dow Jones of flagging oil and manufacturing companies.

Long-distance telephone specialist WorldCom inc., second largest in the world after AT&T, is expected to announce plans to lay off more than 10,000 staff, around 13% of its worldwide workforce. Slow growth in some communications services and a tightening of financing conditions in a slowing economy have been blamed, but it appears that WorldCom’s problems are more likely to stem from fierce competition that has forced an erosion of profit margins. WorldCom’s shares remain more than 60% off their 52-week high. Other companies announcing job cuts recently include L M Ericsson and Hewlett Packard.

Bill Gates, as usual at odds with so many other affluent and influential people who may perhaps be anxious to conserve their personal resources at this time when the economy looks to be less than booming, has pledged $100 million to help develop a vaccine to fight the "A" strain of the HIV virus prevalent in sub-Saharan Africa. Whilst such a large amount of money may possibly be only a drop in the ocean to Microsoft boss Mr Gates, the continued increase of AIDS in Africa and the timing of the announcement just a few days before "live" trials of the vaccine are due to begin in Kenya has raised hopes that significant progress can be made.

While much of the USA worries about whether or not they are heading for economic crisis, many Californians may be in no doubt about their crisis. Hopes that their power problems would ease, if only briefly, were dashed as a blast of cold weather and an unexpected plant shutdown combined to force grid managers to declare a high alert for the 11th consecutive day, again raising the possibility of blackouts. Officials are expecting around 1,100MW of generating power to be back on line by Monday, but the outlook for the rest of the weekend remains grim.

27th January 2001                        

 

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