Advanced Micro Devices
Re: I'm Out...

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By RolePlayer
December 21, 2000

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If I recall correctly, in 1992 the Fed had the brakes on the economy to try and prevent the out of control deficit from really screwing things up. George H. W. Bush, having inherited that mess from Reagan, was (somewhat unfairly, in my mind) forced to suffer the consequences, and it led to his being a one term president. Clinton, being the astute political animal that he is, realized that whatever else you may or may not do, you can't mess with Greenspan. The deficit under control, Greenspan left things alone, and the economy purred along.

But with relatively few signs of trouble on the horizon and a new election forthcoming, Greenspan started raising rates. When the economy clearly slowed, Greenspan didn't ease off.

It is rank speculation on my part, but I can see that it's possible that Greenspan's real message to Bush the Younger (as well as Gore) was, "Don't go messing with huge tax cuts until the Debt (not the deficit) is lower." In other words, fund continued expansion by releasing dollars that have been servicing the National Debt by using the much touted surplus to help pay it down.

America's national debt soared to phenomenal heights during the 1980's. Yes, it bankrupted the Soviet Union and yes, that was on balance a good thing, but it was still an expensive good thing. The average American citizen pays less in taxes than the average citizen in any of the major industrialized nations, and grumbles about our taxes more, as if without taxes things like freeways and hydroelectric energy and stealth bombers would get built. Greenspan knows this, and although it's an unpleasant truth for everyone who longs for lower taxes (which is almost all of us) we really aren't paying that much compared to almost everyone else in the world.

Think of paying off the Debt as an enforced 401-K plan. It will lead to lower interest rates, which benefits almost everybody. When the Debt is seriously reduced, we can cut taxes. We as a nation have gotten out of the habit of saving, but I think what Greenspan is saying is "Savings are good." If George W. Bush doesn't heed that message and tries to push through big tax cuts, he too may wind up a one term President because of recession, but in his case he was warned.

Finally, as Fools, which do we like better in companies as potential investments: companies that owe a lot of money but give tax cuts, er, pay dividends, or companies with lower debt and enough money in the bank to enable the company to respond to changing circumstances? Why do we expect less from our government than we do from our investments?

Fool on!