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GREENSPAN not worried about effect of tax cut, consumer confidence

Updated:
WASHINGTON (AP) _ Federal Reserve Chairman Alan Greenspan said Wednesday he's not worried that the newly enacted $1.35 trillion tax cut will plunge the federal budget into a deficit as productivity growth slows.

``I'm not, senator,'' Greenspan replied when asked by Sen. Charles Schumer, D-N.Y., at a Senate Banking Committee hearing whether he was concerned about a potential slide back into government deficit spending.

On another economic issue, Greenspan acknowledged that the recent tide of job layoffs _ which have reached more than 400,000 a week _ ``has got to be a factor in determining the propensity of people to spend money'' and affects consumers' confidence.

However, he added, there hasn't been ``any real serious deterioration'' in spending by consumers, a more important benchmark than how confident they feel.

During questioning, Schumer and several other Democratic senators needled the central bank chief to express concern over the big 10-year tax cut, given the state of the economy and the low savings rate of Americans. The tax cut, recently enacted by Congress, is the centerpiece of President Bush's economic program.

Greenspan, in his testimony, said the sagging economy has brought more problem loans and made bankers fairly tightfisted. He cited problems in retailing and manufacturing and among California utilities.

Bank regulators ``need to be more sensitive to problems at individual banks, both currently and in the months ahead,'' Greenspan said at the hearing on the state of the nation's financial system. He also noted weaknesses in the health care and telecommunications industries.

``We are fortunate that our banking system entered this period of weak economic performance in a strong position,'' Greenspan said.

At the same time, the Fed chief reiterated his statement last month that bankers and regulators are getting better at reducing risks and breaking a cycle of tighter lending in a slumping economy and expanded credit in a recovery.

``It is not an easy road, but it seems that we are well along it,'' Greenspan said.

In his testimony, Greenspan did not discuss the future course of interest-rate policy.

To ward off recession, the Federal Reserve has slashed interest rates five times this year. Many analysts predict policy-makers will make a sixth cut at the end of their two-day meeting June 27. Economists, however, have mixed opinions on the size of the reduction, with some predicting another half-percentage-point cut and others leaning toward a more moderate quarter-point move.

Greenspan's remarks come as personal debt is at an all-time high, and the amount of income Americans are dedicating to making payments on it is at levels not seen in 15 years. Mortgage delinquencies and write-offs by credit card companies are rising, and personal bankruptcy filings could hit a record this year.

During questioning by senators at Wednesday's hearing, Greenspan suggested the problem of Americans' low savings rate _ which stood at a negative 0.7 percent of after-tax income in April_ is tempered by the ``extraordinary degree of productivity from our savings.''

Greenspan declined to express his view on a proposal before Congress to raise the $100,000 limit on deposit insurance coverage, which he has previously opposed on grounds it would be a subsidy for wealthy people. He said he preferred to wait until the Federal Reserve's board of governors takes an official position on the issue.
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