Business spending is the issue of the day. Businesses had so much inventory and capacity that they have had, and are having, a terrible time getting rid of it. Industrial over capacity is a huge problem that isn’t going to clear up for awhile.  As I drive down the road, I see empty buildings, lots of them. I can’t see building more business space in the bay area for awhile, a long while. Rents have dropped 50% in SF so why would a company build a new building? The program is sound economic policy of lowering interest rates to spur business and consumer spending. But business overspent so much in the last boom, they still don’t need to spend.

In fact, where would they spend? Space and capacity are overbuilt, software was all updated in Y2K, and the next big thing has yet to be determined. We all have cell phones, computers, cars, houses, etc. What do we need in a rapidly increasing way? Where would you spend R&D money except drugs and health?

The minute the rate cut idea was floated, there was significant pressure on the European Central bank to cut rates also. They did so to the tune of 50 bps. The bond market and stock markets reacted favorably and the issue of deflation was put on the back burner. Deflation is a real killer and if a rate cut can put in our minds that the fed will do whatever they have to in order to avoid it, its worth it.

Based on loanable funds, if the interest rate decreases, what happens? Demand increases all other things held constant. So more will want to borrow money. Hopefully, in our current economy this will push businesses to want to borrow at this new low rate to finance new projects which will increase business spending, the real laggard in the economy.

The markets jumped at the beginning of the war but are now trading lower.  They may trade even lower as the war continues and uncertainty remains.  The dollar remained under pressure near recent lows versus the euro and other currencies.  The price of oil dropped but bounced as the war didn’t end quick enough for traders.

Maybe the worst news is that consumers aren’t happy.  Representing the vast majority of GDP, consumer spending was the key element in keeping the economy afloat for the last few years.  The University of Michigan’s final March index of consumer sentiment fell for a third straight month to 77.6, its lowest since September 1993, from 79.9 in February.  And if they do spend, fewer of us are paying our bills on time.

Credit card delinquencies in the fourth quarter of 2002 to the highest level since the American Bankers Association began tracking the data in 1990.  Credit card delinquencies climbed to 4.07 percent of all accounts in the quarter, up from 4 percent in the third quarter of 2002, which was the previous high.

On a lighter note, the NYSE is taking a little flak  In the past week, the exchange has taken a double hit: it has been criticized for its decision to appoint Citigroup Inc. Chief Executive Sanford Weill to its board and then has also been questioned on its call to ban two reporters from al Jazeera from broadcasting from its floor.  Weill is in the middle of the WorldCom scandal and banning reporters seems to get under the skin of many that feel that free speech is exactly what the world needs right now.