Greenspan says credit crunch may ease

May 17, 1991|By Fort Worth Star-Telegram

WASHINGTON -- Federal Reserve Board Chairman Alan Greenspan said yesterday that the "credit crunch," which has made borrowers into beggars and stifled economic recovery, had finally bottomed out.

"While the crunch is not easing, it's reached its maximum, and there is some evidence that we may not be too far from a basic softening in it," Mr. Greenspan told the Senate Finance Committee.

"Credit crunch" refers to the tight lending policies that banks have applied with increasing severity as real estate markets collapsed and regulators restricted high-flying financial activities.

The central bank chairman made his remarks in response to question ing from Finance Committee Chairman Sen. Lloyd Bentsen, D-Texas, who said he was concerned about high interest rates on short-term loans as well as the nation's low savings rate.

"Productivity will grow only if there is enough capital to build the modern factories and buy the modern equipment American workers need to produce more goods at lower cost," he said.

For the first time, Mr. Greenspan gave qualified support for an expanded Individual Retirement Account, a program promoted by Mr. Bentsen.

"It's probably worth a chance," Mr. Greenspan said. "If, in fact, it doesn't turn out to have any major net addition to national savings, there's probably very little damage that is done in general."

He said that studies about the effectiveness of the IRA in promoting savings were inconclusive but that he was so worried that the decline in the savings rate was hurting the U.S. economy that he would support expanded IRA incentives.

Senator Bentsen and Sen. William V. Roth Jr., R-Del., are co-sponsors of an IRA package that would allow consumers to choose between the IRAs as they were constituted before the 1986 tax reform law and a new type of IRA. Contributions are now deductible only for individuals earning less than $25,000 and for couples making $40,000.

The Bentsen bill would permit up to $2,000 in tax-free contributions a year for all income levels. The amount would be indexed to inflation.

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