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value of stock above realistic levels, and what we saw was a pull back to more realistic levels. I think it’s a bit premature to judge the final effects of that pull-back on the Texas economy, since the market’s still volatile. We’re not revising our outlook here for the Texas economy yet, and there’s no immediate effects on state revenues. This has been a paper loss, in effect; the state doesn’t see any direct decline in revenues as a result. The effects, at least where state taxes are concerned which is where I put my focus the effects are largely psychological. If the guy on the street who doesn’t own any stock, if he feels uncertain about the future and he pulls back, he doesn’t buy, he doesn’t buy big-ticket items, he doesn’t buy a new car, he doesn’t buy a new refrigerator, the state doesn’t get the tax . . . and state revenues suffer. And there’s also a lot of people who, on paper at least, have lost a lot of money over the last week. They feel poorer, they spend less. Over the last year . . . we’ve seen oil prices rise, just about double, and seen them stabilize in the 20-dollar range, and that’s brought some new confidence to the state’s oil industry. And that’s brought new investment to the state’s oil industry. Rig counts are up, oilfield manufacturing’s even put some people back to work and this stabilization, this return of confidence, has allowed the economy to recover. Now, if this is counteracted in another area of the economy by a pull-back if the stock market pull-back causes a lingering decline in consumer confidence, in business confidence, then we’re going to have problems. I think U.S. growth will 1 4..e slowed somewhat by this. I don’t see a decline in the U.S. economy because of this. I think it’s a setback, it’s a negative, but there are positives out there, too, and I don’t think this is enough to send us into a U.S. recession, and a Texas recession either. [The Texas economy] would actually notice [a U.S. recession] more than it might have in the past, because, you know, oil is now a lesser part of our economy; we are tied to the U.S. economy, so if there is a lingering effect, if investment is seriously depressed by this in the U.S., Texas will feel it. It’ll hurt us less, simply because we’ve been through so much in the last few years that it’ll be like one more blow. But I want to stress that it is my view that the jury’s still out, if you will, on this. We’re in the middle we’re not even sure where the stock market’s going to settle, and then, as I said, it’s a psychological thing. If we can over come it, then we’ll see no lasting impact. We had seen the unemployment bottom out in the,summer of this year, and, although ’87 will still be a down year for the Texas economy because the first part of the year was so bad, ’88 will pick up, and in ’89 we’ll about double the national growth rate. I mean we’ll be growing a little faster than the nation as a whole in ’88 and quite a bit faster in ’89. So our indicators are pointing to a recovery. Some have said that this will be actually a blessing in disguise for the monetary system, or for the banking system, in that the monetary policy will just ease up in general. Now that’s not to say they’re going to prop up savings and loans, but they’re going to make more money available to try to counteract these effects. You know, we saw the dropping of the prime rates, and statements by [Fed chairman Alan] Greenspan that monetary policy would be eased up, that liquidity would be there; I mean these are the kind of statements that we’re going to help out the monetary system, we’re not going to let it compound the problem. I think . . . there’s going to be a plus here: At least that’s what the policy in Washington, I believe, is going to be to try to offset some of the negatives we’re seeing in the stock market. O 0 0 IL Richards U.S. Must Act In Global Market ANN RICHARDS Texas State Treasurer. I don’t have any crystal ball and never pretended to be a financial wizard. In terms of the effect of the stock market on banks, most banks have their investments in more stable investments, nonspeculative investments. Most financial institutions, if they have any money in stocks, they balance their portfolio in bonds. So if one loses, the other gains. In terms of the state’s financial institutions, there’s one up side. They might benefit from the money that people take out of the stock market and decide to put in banks or savings and loans instead… . Now, the question is, what caused [the crash]? The real factors that were at play were, of course, the situation with the Federal deficit and the imbalance of trade. But I think that another thing that is real key here is the involvement of foreign companies in American markets, which is larger than it ever has been. For Texas that presents an interesting and difficult thing, because our main industry, which is energy, is at the behest of OPEC. And of course what goes on there and in the Persian Gulf mattersmore to Texas and the oil industry than what goes on on Wall Street. By the same token, foreign interests that are coming in to American markets make Texas and the United States even more beholden to whatever foreign influences economically are at work. I think that this is difficult for Americans to get a handle on. We had prided ourselves on our independence and we are now very much a part of a global market. I don’t think that there’s any question that you’re going to see some movement toward some form of change in regulation in an international way. I think that the markets around the world are going to begin to come together in their own interest to see what they can do to stabilize the situation. It’s no healthier for Japan or the Hong Kong market or Germany or London or for New York. We’re no longer independent operators. We’re so intricately intermeshed in our economy that the effect of one is of course going to have serious reverberations on the other. And this is something that we had really not confronted or had to deal with. Our unemployment is 8.5 percent. Our hopes of climbing out of that depend on the stability of other states that do business with us. For example the timber industry. If a recession takes place in other states, if interest rates climb and we see a reduction in housing construction, then that will have an effect on the Texas timber industry. We don’t stand alone. Now, one school of thought, of course, is that we’ve already seen our recession. Percentage-wise we would probably feel it less than, say, THE TEXAS OBSERVER 13