Thursday, May 03, 2012


Greenspan Says U.S. Stocks ‘Very Cheap,’ Likely to Rise

Perhaps this would help -

Greenspan Says U.S. Stocks ‘Very Cheap,’ Likely to Rise 

By Steve Matthews and Tom Keene - May 1, 2012 10:18 AM PT

Former Federal Reserve Chairman Alan Greenspan said U.S. stocks offer good value and are likely to rise as corporate earnings increase over time.
“Stocks are very cheap,” Greenspan said today at the Bloomberg Washington Summit hosted by Bloomberg Link, citing “a very low price-earnings ratio.”
Alan Greenspan, former chairman of the U.S. Federal Reserve, speaks at the Bloomberg Washington Summit in Washington, D.C. on May 1, 2012. . Photographer: Joshua Roberts/Bloomberg
May 1 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan talks about the outlook for U.S. stocks, bonds and Federal Reserve Monetary Policy. Greenspan, speaking with Tom Keene at the Bloomberg Link Washington Summit, also talks about the U.S. housing market and federal budget reduction. (Source: Bloomberg)
“There is no place for earnings to grow except into stock prices,” said Greenspan, who served as Fed chairman from August 1987 to January 2006.
Stocks have rallied on better-than-forecast corporate profits and signs of economic strength. The Standard & Poor’s (SPX) 500 Index has risen more than 12 percent this year, the best start to a year since 1998.
The index rose 1.1 percent to 1,413.83 at 12:57 p.m. in New York after a report showed that U.S. manufacturing unexpectedly expanded in April at the fastest pace in 10 months.
The S&P 500 trades for 14.3 times reported income from its companies, or 13 percent below the average since 1954, according to data compiled by Bloomberg News.
Another valuation metric, known as the Fed model because it was derived from a July 1997 report from the central bank, shows U.S. equities are close to the cheapest level ever relative to debt. The technique compares the earnings yield for stocks with Treasury rates.

Bull Market

Profit for S&P 500 companies has represented 7.2 percent of the index’s price on average in 2012, or 5.91 percentage points more than yields on 10-year Treasuries, according to Fed model data compiled by Bloomberg. That compares with the average difference of 0.03 percentage point and the record high of 6.99 points when the bull market started in March 2009, according to data compiled by Bloomberg going back to 1962.
Greenspan said the rising stock prices create a “wealth effect” that boosts consumer spending and the overall economy. “So equities play a hugely important role, which I think is grossly underestimated,” he said.
In a separate interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene, Greenspan said a lack of long-term investment in housing and nonresidential construction was hurting employment.
“Housing at this stage as you know is moving nowhere,” he said.

Market Balance

The former Fed leader, who opposed excessive financial regulation as a central banker, said the best thing U.S. policy makers can do is refrain from interventions that prevent markets from settling to a proper balance.
“Allow markets to heal,” he said. “Markets have been consistently bombarded with all sorts of policy decisions,” which “has clearly prevented markets from adjusting.”
Treasury 10-year yields rose from almost the lowest level in three months after the Institute for Supply Management said its factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg survey, from 53.4 in March. Readings greater than 50 signal growth.
The 10-year yield rose three basis points, or 0.03 percentage point, to 1.95 percent, according to Bloomberg Bond Trader pricing. It touched 1.90 percent before the manufacturing report.
The former central banker’s comments on equities haven’t always been timely. In 1996, Greenspan said the stock market may reflect “irrational exuberance” when the Dow Jones Industrial Average was above 6400. The index peaked at over 11,700 in January 2000, before technology stocks slumped.
To contact the reporters on this story: Steve Matthews in Atlanta at
To contact the editor responsible for this story: Christopher Wellisz in Washington at

Wednesday, August 24, 2011


Greenspan endorses GOLD at it's HIGHS

You can always count on Greenspan to get it wrong. He's "not worried" about a "double dip," Well, guess what? I'm not worried about it either, because we never got out of the first "dip."

While we're at it, lets stop calling it a "recession" and call it what it REALLY IS:

Namely - A DEPRESSION! We can all thank Mr. Greenspan for getting us here.

I'd also add that Gold fans should be absolutely terrified to know this idiot says it's not a bubble. Greenspan is now (after a more than 600% rise) finally in the camp of being a fan of Gold. As if the guy could identify a bubble. This assclown didn't think the Nasdaq was a bubble as it topped 5000 in March of 2000 and even gave a famous speech on the wonders of Technology only a few days prior to it's topping and subsequent collapse.

As of today, Gold is down over $150 an ounce since he was interviewed for this article (below) posted on Bloomberg. Seems his interview perfectly coincided with the current ALL-TIME HIGH in Gold. Will Gold go higher than the current high? Perhaps, but the odds of that dramatically fell considering this chump now loves it.....

Another great call Greenspan.


Let me just ask again - PLEASE FUCKING DIE!!!!!


Greenspan Says Euro ‘Breaking Down’

Former Federal Reserve Chairman Alan Greenspan said fissures in Europe’s common currency may lead to slowing in the U.S. economy.

“The euro is breaking down and the process of its breaking down is creating very considerable difficulties in the European banking system,” Greenspan said today in Washington.

Emergency steps such as unlimited loans from the European Central Bank are keeping many banks in Greece, Portugal, Italy and Spain solvent and easing lending by other Europe institutions. Greenspan said a contraction in Europe would hurt profitability and stock values of American companies since Europe is the target market for about 20 percent of U.S. exports and about 20 percent of foreign-affiliate earnings.

A lack of confidence in euro-denominated debt is straining the region’s banks, Greenspan said. “That stuff has always been thought of as the ideal collateral and now it’s getting highly questionable,” he said in a question-and-answer session at the Innovation Nation Forum in Washington.

“The problem is that there is a growing cleavage in the economic and analytical and banking circles as to whether the Euro, which is the crucial issue here, should be 17 countries with very significantly different cultures” regarding the role of government, consumer spending and inflation, Greenspan said.

Asked if the breakup of the euro was one possibility, he replied, “obviously.”

‘Less Worried’

Greenspan also said he is “less worried about a double-dip than most people are but I’ll certainly grant that the odds are rising,” referring to the chance that the U.S. economy will return to recession. “The reason we are so sluggish is the level of uncertainty.”

The economy grew at a 1.3 percent annual pace in the second quarter of 2011, according to the Commerce Department. That followed growth of 0.4 percent in the first quarter, the slowest since the second quarter of 2009, when the economy was still mired in recession.

One gauge of the economy’s momentum, the Chicago Fed National Activity Index, improved to minus 0.06 in July from minus 0.38 a month earlier, the regional bank said yesterday. The index is a weighted average of 85 economic indicators, with readings less than zero indicating “below-trend” growth and average readings below minus 0.7 percent over three months signaling an increasing risk that a recession has begun, according to the Chicago Fed.

Greenspan said Aug. 7 on NBC’s “Meet the Press” that the chance of a return to recession “depends on Europe, not the United States. The United States was actually doing relatively well, sluggish, but going forward until Italy ran into trouble. That destabilized the European system and the crisis reemerged.”

Asset Purchases

Concern about the government debt of Italy and Spain prompted the European Central Bank on Aug. 8 to begin buying Italian and Spanish assets to lower their borrowing costs, as Europe’s sovereign-debt crisis nears its third year.

A four-week global equity rout has wiped about $8 trillion from companies’ market value as Europe’s sovereign debt-crisis and worsening economic reports in the U.S. raised concern the global economic recovery is faltering. The S&P 500 fell 16 percent from July 22 through the end of last week and its members trade at an average 11.3 times estimated earnings, near the lowest level since March 2009.

The Standard & Poor’s 500 Index advanced 0.9 percent to 1,134.34 at 10:23 a.m. in New York today.

“What has been the greatest thrust coming out of the recession has been the extraordinary rise of stock prices in the U.S.,” Greenspan, 85, who was chairman of the central bank from 1987 to 2006, said today.

No Gold Bubble

Greenspan also said that he did not think gold, which reached a record above $1,900 an ounce this week, was in a bubble.

“Gold, unlike all other commodities, is a currency,” he said. “And the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.”

After leaving the Fed, Greenspan founded the consulting firm Greenspan Associates and has been a consultant or adviser to Deutsche Bank AG, Pacific Investment Management Co. and hedge fund Paulson & Co.

To contact the reporter on this story: Joshua Zumbrun in Washington at

Friday, June 03, 2011


Greenspan Does more Comedy

The phenomenally ludicrous drivel this guy spews is truly comical, and profoundly pathetic - especially in light of his globally destructive economic legacy.

How can anyone want to listen to this criminally ruinous fool, and actually believe or care what he has to say on ANY subject, least of all, one he knows NOTHING ABOUT!

This menace to society should be hanging from a NOOSE - not talking to a TV audience!



Greenspan 'Scared' Over Deficit, Urges Clinton-Era Tax Structure

Friday, 03 Jun 2011 08:59 AM

By Forrest Jones

The United States needs a tax policy similar to the one from the Clinton administration if it is going to navigate its way out of the economic crisis, says former Federal Reserve Chairman Alan Greenspan.

If he had it his way, spending plans put forth by Rep. Paul Ryan, R-Wis., would be best but in reality, compromise rules the day when Democrats control the White House and Senate while Republicans control the House.

So what is best for the country includes a balance of spending and revenue found under President Bill Clinton.

“I am a long-standing small government, free-market economist for years and years back and I have never veered from that,” Greenspan tells CNBC.

But he believes that in order to raise revenue and close the debt gap, 1990s-era taxes must be reinstituted.

“The fact that I am in favor of going back to the Clinton tax structure is merely an indication of how scared I am about how this debt problem has emerged and it’s order of magnitude.”

Greenspan said Congress has no choice but to approve raising the debt ceiling as the US would risk catastrophe if it does not meet its obligations.

"The problem is we're all going and maneuvering around and as the days pass we're getting closer and closer to the debt ceiling," said Greenspan, who called Washington brinkmanship on the issue an "extraordinarily dangerous problem for this country."

Recommendations made by a presidential commission co-chaired by Democrat Erskine Bowles and Republican Alan Simpson to reduce the deficit by about $4 trillion by 2020 via spending cuts and raising the retirement age should also be considered.

More draconian spending proposals coming from Ryan won’t happen.

“If I had my own way, I like the Ryan budget, in all respects, and I think that essentially that sort of thing would be what I would vote for if in fact I were voting. But the problem essentially is that is not going to get a majority vote in Congress or be signed by the President of the United States.”

So a fallback position on which all can agree is better for the country.

The critical issue, Greenspan says, is making sure debt service of U.S. Treasurys continues as is.

In other words, don’t disrupt the system.

“I cannot conceive of any Secretary of the Treasury or for that matter, any president basically forfeiting on U.S. treasury issues. That would create horrendous problems in the money markets and would probably cost the American taxpayer very significantly.”

Furthermore, more attention is needed to improve the country’s education system and changes to Medicare and Social Security are needed as well.

"It's not an issue of saying we have a choice for what we're going to do. We don't have the physical resources," Greenspan says.

Government is "guaranteeing their medical services, and I think that's not accurate. We cannot do that granted our lack of resources."

Treasury Secretary Tim Geithner has said without an increase in the $14.3 trillion debt limit by Aug. 2, the government will default.
However, Geithner says he is confident politicians from both sides of the aisle can agree on a spending plan.

"I'm confident two things are going to happen this summer," Geithner says, according to the Associated Press.

"One is we're going to avoid a default crisis, and we're going to reach agreement on our long-term fiscal plan."


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Friday, March 04, 2011


Greenspan: Economy Is Picking Up Momentum

Basically, the baboon said -

Set aside bloated stock valuations, set aside the deficit problems, set aside the rapidly increasing prices in Oil, Food and other things people need to use, the economy is doing great. If only we could find a way ignore the negatives as we've done the last 30 years.

Greenspan: Economy Is Picking Up Momentum

Published: Friday, 4 Mar 2011
Published: Friday, 4 Mar 2011 | 10:39 AM ET
Text Size
By: Jennifer Dauble



Following are excerpts from the unofficial transcript of a CNBC interview with Former Federal Reserve Chairman Dr. Alan Greenspan today on CNBC's "Squawk Box." All references must be sourced to CNBC.


"One thing that economists have been bedeviled by over the years is that the correlation between oil prices on a global basis, and global economic activity is far more precise than any evidence we have that it should be, in short, as a leading indicator, global oil prices are a very useful statistic, the only problem is we don't know fully where all the channels are."


"My view is that when oil prices get up to this area and start to move up even higher, you do have to start to worry, but there is no question at this stage that the momentum of this economy, leaving out the oil price issue, leaving out the Euro problems that have emerged, and very specifically leaving out the budget problems, this economy is really beginning to pick up momentum."


"There is no question at this stage that the momentum of this economy, leaving out the oil price issue, leaving out the Euro problems that have emerged, and very specifically leaving out the budget problems, this economy is really beginning to pick up momentum."


"The fascinating issue for forecasters is how do you factor in all of the negatives because there are not sort of modest rises here, modest costs here, these are big stuff on both the debit and the credit side, and how its going to work is not all together clear-- but for the moment this economy is moving."


"When you have two faulty currencies, and the euro and dollar are both faulty, but probably almost equally faulty, so that the exchange rate between the dollar and Euro is not really moving all that much."


"What the price of gold is saying, is that there elements within the marketplace that feel very uncomfortable with respect to what is going on generally, and its not an accident that you're finding that central banks are going in to buy gold and one of the reasons is gold is historically one of the rare media of exchange that doesn't require any collateral or backing, counter signatures, gold is universally acceptable as a means of payment."


"I'm not saying we can or should go back on the gold standard, that would be extremely difficult, and it would require such cast changes that this society has made no indication that it wants to do that, but I do think to get a sense of the stability of the system, watching the price of gold is not too bad."


"When we talk about the price that will hit us, keep an eye on brent and not on WTI, that has got technical problems."


"I am assuming, and this is an assumption, that the foreclosures will begin to slow down, they are beginning to slow down, but the problem that we've had is such a large proportion of sales are distressed sales, and clearly if you have a significant proportion in that category, the overall price level is going down."


"Ultimately what is the determinate, as far as I'm concerned, is basically whether or not the price, excluding distressed sales, is falling, because the other is a statistical problem, I'm not saying its not real, it is real, but it gives you a false signal, so I'm watching the less distressed sales, now I must admit those prices have edged down recently somewhat to my surprise. But not enough to create where I think the problem is."


"When subprime went underwater, they were very rapidly going into foreclosure because they couldn't basically live with it, but the vast majority of conventional conforming mortgages, even those which were underwater, are none the less capable of being financed by the people who live in the homes the proportion of conventional conforming homes that will be defaulted, is really very small."


"At this point the Fed is in the position where it can contract its balance sheet very significantly and the issue is will they be able to do it in proper timing? They think they can."


"These are judgments that you have to make, I know Bernanke very well, we worked together, Ben and I went over a number of crisises together, I know how he functions, I have considerable trust in his judgment."


"You're dealing with very difficult problems. The one thing we all pretend we can do but we can't, is forecast, the future out there isn't very bright."


"I look at whole series of mandates in Dodd/Frank and I think some of them are internally contradictory, and we're going to find out if that is indeed the case when the regulators start to implement."


"What we're going to find is that the unexpected consequences of much of the new regulation that's going to come as a result of Dodd/Frank is going to have to reversed, and that's going to create very high degrees of uncertainty."


"The purpose of a financial system is to move the scarce savings of a society into physically productive assets, we in the United States have been very affective in doing that, poor savings but very high rates of return. You start moving some of that scarce savings to propping up companies, it does not go into effective uses, and the result is output per hour slows down and standards of living slow down. So too big to fail is critically an issue with respect to standards of living, you have to have failures, JOE (HAVE WE SOLVED IT?) no we have not."


"Saudi Arabia is, look- its got three and a half million barrels of standby crude capacity, nobody else has standby capacity, so Saudi is a whole game."

Tuesday, January 11, 2011


Greenspan: 'Prove I Was Wrong'

Yep, he's been very successful at pumping massive amounts of debt into the global financial system which is now crushing the majority of the world's citizens.

Yes Greenspan, it's very hard to prove you wrong. I doubt we could find anyone on the entire planet who'd call you a failure......

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Thursday, July 01, 2010


Greenspan still can't grasp REALITY

For this clown to say there is anything "typical" about what is going on is the height of lunacy! Also ludicrous to suggest no one could have forecast the crisis!

This menace to society should be PUBLICLY EXECUTED for his crimes against humanity!

Greenspan: Recent Decline 'Typical' of Recovery

Thursday July 1, 2010, 9:49 am EDT

Former Federal Reserve Chairman Alan Greenspan said that the recent stock market decline is "typical" of a recovery, and that international instability has more to do with the recent decline than problems in the United States.

"What we're looking at is an invisible wall, which we've run into here. Which, essentially, as far as I can see, is a typical pause that occurs in an economic recovery," Greenspan said in an interview with CNBC. "Ordinarily we're saying that the stock market is driven by economic events, I think it's more in the reverse."

"I will grant you that this is not a normal economic recovery. We've just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen," he said.

Greenspan said the U.S. economic recovery is undergoing a “typical pause” that will be shaped by the performance of stock markets.

"This recent decline is more international than it is a domestic affair," he said, adding that "there is an inherent instability in the euro system."

The lack of hiring is due to businesses being shocked by the collapse and dramatically pulling back on spending, Greenspan said.

"There is clearly a short term fear factor involved," he said. "People don't want to hire because they're terribly concerned they have to let them go. The average work week has been going up which is another way of telling you that they're more intensively using what they got before they're hiring."

The hiring that has occurred has been done by mostly been "dominated by large banks, higher income individuals and bigger business," Greenspan said. In past recoveries, small businesses do most of the hiring and begin to pull the the economy out of a recession, he said.

The ADP Employer Services report released Wednesday, for example, showed that large and medium sized businesses with over 50 employees reported an increase in hiring in June, while small businesses with fewer than 50 workers reported a decrease.

One of the reasons that small businesses are not hiring, Greenspan said, is because smaller banks are loaded up with commercial loans and aren't lending. "Small business is in real serious trouble," he said.

In the far ranging interview, Greenspan said that raising the capital gains tax in the US would be ill advised. He also added that the financial crisis could not have been foreseen.

"It is just not feasible to forecast a financial crisis," he said. "A financial crisis by definition is a sharp abrupt, unexpected decline in asset prices." (COMPLETE & UTTER NONSENSE - Many people foresaw it, just not the exact timing).

Friday, June 18, 2010


Babbling Baboon Buffoon Rambles the Obvious

Nevermind the fact this disingenuous douchebag piece of garbage scumbag is a huge (THE MAIN ONE) contributor to the problem. Sorry for my muted contempt of this guy. I could go on & on. Fact is, this guy should be hanging from a light pole somewhere. At the very least, he should be rotting in jail like Madoff is. What he did is exponentially worse.....


Greenspan Says U.S. May Soon Reach Borrowing Limit

Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a “tectonic shift” in fiscal policy to contain borrowing.

“Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal’s website. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80, he said.

Greenspan rebutted “misplaced” concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner said this month that while fiscal tightening is needed over the “medium term,” governments must reinforce the recovery in private demand.

“The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy,” said Greenspan, 84, who served at the Fed’s helm from 1987 to 2006. “Incremental change will not be adequate.”

Rein in Debt

Pressure on capital markets would also be eased if the U.S. government “contained” the sale of Treasuries, he wrote.

“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”

Yields on U.S. Treasuries have benefitted from safe-haven demand in recent months because of the European debt crisis, a circumstance that may not last, said Greenspan, who now consults for clients including Pacific Investment Management Co., which has the world’s biggest bond fund.

Benchmark 10-year Treasury notes yielded 3.20 percent as of 12:11 p.m. in Tokyo today, down from the year’s high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the crisis began. Yields have remained low “despite the surge in federal debt to the public during the past 18 months to $8.6 trillion from $5.5 trillion,” Greenspan said.

The swing in demand toward American government debt and away from euro-denominated bonds is “temporary,” he said.

“Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis,” Greenspan said. “Our policy focus must therefore err significantly on the side of restraint.”

Tuesday, February 09, 2010


Greenspan - PLEASE JUST DIE!

This clueless menace to society never will accept THE FACT that HE CAUSED THIS CRISIS!!!!!!!!

Alan Greenspan fights back

By Geoff Colvin, senior editor at large

(Fortune Magazine) -- When the Senate grudgingly reconfirmed Ben Bernanke as Fed chairman two days before his term expired, he was only a stand-in for the man 30 senators were really mad at. "I knew that he would continue the legacy of Alan Greenspan, and I was right," said an angry Jim Bunning, a conservative Republican from Kentucky who voted no. Fumed Bernie Sanders of Vermont, the Senate's only (admitted) socialist: "He said it publicly -- I want to follow in the footsteps of Alan Greenspan. Alan Greenspan's philosophy is a disaster." Jeff Merkley (D-Ore.) said Bernanke "helped set the fire that destroyed our economy." Only helped, that is -- and we all know whom he helped.

Seldom has conventional wisdom on so recondite a topic -- Federal Reserve interest rate and regulatory policy from 2002 through 2005 -- converged so thunderously on one person. Greenspan, in his final four years as Fed chairman, kept rates too low and regulation too light, goes the argument. The result was the housing bubble.

The bubble's inevitable bursting caused the worst financial crisis in 80 years, bank failures across the land, the longest recession since the Great Depression, towering unemployment, and economic misery for millions.

People and institutions normally at each other's throat all seem to agree: Editorial pages from the Boston Globe on the left to the Wall Street Journal on the right, think tanks from the liberal Institute for Policy Studies to the beyond-conservative Cato Institute, Nobel Prize--winning economists including Keynesian Paul Krugman and rationalist Gary Becker -- they all know who's to blame for the mess we're in. Four years after leaving the Fed as the Greatest Central Banker Ever, the longest-serving chairman, the Maestro, Alan Greenspan is the designated goat.

Seemingly the only person in America who hasn't weighed in on this matter lately is Greenspan. In the past year or so, as unemployment climbed and criticism of him became broadly accepted, he has written little and rarely spoken publicly on this topic, though he occasionally comments on the economy's current state.

So what does he think about his reversal of fortune? No surprise: He believes the case against him is wrong. What is surprising is how deeply he analyzes the debate. He studies the data and is confident it will exonerate him. He is marshaling his facts and will present his data-driven analysis in a 12,000-word article, but hasn't said when.

Of course he doesn't like what's happening to his reputation, yet he seems sure that when this recession is past and informed people can look at the whole picture dispassionately, they'll agree that he didn't cause the crisis and couldn't have prevented it. Could he be right?

"My actual business life hasn't changed since 1948," says Greenspan, referring to the year he became a Conference Board economist -- having previously worked as a saxophonist in the Henry Jerome jazz band. "The only thing that has changed is my employer."

His employer now is himself. He's sitting in his expansive, oval-shaped office overlooking Washington. It's a cold winter day, and over his white shirt and quiet tie he's wearing a hunter-green zip-up fleece with "G-20" embroidered on it in gold thread. His title is president of his consulting company, Greenspan Associates, the associates being three young assistants.

The "business life" he mentions is easily described: "studying data and trying to figure out how the world works." He did it long ago at the Conference Board, then at his consulting firm, Townsend-Greenspan, and on President Ford's Council of Economic Advisors. For 18 years he did it as Fed chairman, and he's still doing it.

In understanding how he's bearing up against the assault on his reputation, it's important to realize that studying data is his passion. As a boy in New York City, he became a statistical encyclopedia of the Yankees and claims that today, at age 83, he can tell you the batting average of every player on the team's 1936 starting lineup (DiMaggio: .323). As Fed chairman, with a staff of 200 Ph.D. economists, he still reserved half his time for what he calls personal research, poring over data by himself.

Today, he says, "I have fewer meetings and spend less time on uninspiring matters," like preparing congressional testimony. Which means, happily, that he can spend even more time on personal research, seated at his desk in front of three extra-large computer screens. That is what revs his engine. Much of his research now focuses on what he did from 2002 through 2005, a small fraction of his time leading the Fed but the crux of his reputation, at least now.

The heftiest version of the case against him comes from a friend, John Taylor of Stanford University. Taylor once worked for Townsend-Greenspan and served with Greenspan on Ford's Council of Economic Advisors.

The two men still talk, and Taylor sometimes drops by Greenspan's office. But he has written scholarly papers intended to show that badly misguided Fed actions under Greenspan created the disastrous housing bubble.

Taylor's case, which has been cribbed shamelessly by many Greenspan critics, is a short chain of logic: First, Fed policy from 2002 through 2005 deviated wildly from the highly successful policy of the previous 20 years. During that golden age of low inflation, strong growth, and rare, mild recessions, Fed rate decisions had mostly followed a formula that Taylor identified in 1993 and that others named the Taylor rule. (Its inputs are the inflation rate, the target inflation rate, economic growth, and the economy's production capacity.)

Taylor showed that, starting in 2002, the Fed veered from the formula, keeping rates too low by Taylor-rule standards. Second link in the chain: The Fed funds rate is correlated with housing starts. Taylor showed that when the rate is low, housing starts go up, and vice versa.

Third link: If the Fed had stuck to the Taylor rule, the housing boom wouldn't have happened. Taylor plugged the Taylor-rule Fed funds rates into his model of housing starts and showed that under those rates, starts would barely have exceeded their level in the late '90s. No boom, no bust, no financial crisis. Other factors may have contributed to the crisis, Taylor says, but Fed rate policy was "at the top."

Greenspan likes Taylor but not his analysis: "He is a very good friend. But his evidence doesn't show what he says it shows." Greenspan and his defenders counter Taylor in several ways. They don't dispute that Fed policy in the critical period deviated from the Taylor rule, though less than Taylor claims.

They insist that the second link in the chain, the correlation between the Fed funds rate and the housing boom, just doesn't hold in today's global economy. Robert Shiller of Yale University, an authority on housing prices, says the housing boom began in 1998, four years before the Fed went off the Taylor rule.

For many years the Fed funds rate and mortgage rates did move up and down almost in lockstep, but starting in 2002 that correlation evaporated. Says Greenspan: "Mortgage rates started moving down six months before we lowered the Fed funds rate."

Mortgage rates seemed to be floating off on their own. Why? The answer brings us to a key element of Greenspan's case for why he isn't this story's villain: The Fed was setting U.S. rates, but the housing bubble was global.

An International Monetary Fund study shows that 20 countries experienced housing bubbles during the critical period, and 11 of them were worse than America's (the worst: Ireland, the Netherlands, and Britain). It obviously makes no sense, Greenspan reasons, to think that the Fed's rate decisions inflated housing bubbles around the world from Sweden to New Zealand.

Instead, a more logical thesis explains what happened: the global saving glut. It holds that when China and other countries switched to market-oriented economies in the early '90s, they became more productive and unleashed a tsunami of capital onto world markets.

All that new capital naturally pushed interest rates down globally -- thus the decoupling of mortgage rates from the Fed funds rate, and the global nature of the housing boom.

John Taylor doesn't like the global-saving-glut explanation for a simple reason: "There is actually no evidence for a global saving glut." Global saving and investment as a percentage of world GDP have been in long-term decline since the early '70s, he points out.

Greenspan's riposte? You have to look at intended saving and intended capital investment, not actual saving and investment. After all, saving and investment by definition will always balance.

So if, let's say, the world's businesses decide not to invest much, perhaps because they're strengthening their balance sheets by paying down debt, then global investment will be low, and by definition actual global saving will be low as well; they have to match. But if intended saving was high -- if a ton of capital was out there looking for a home -- then interest rates would fall.

That's what happened during the housing boom, says the IMF. There was an "excess supply of saving." Combine low mortgage interest rates caused by that flood of capital with other factors -- the incredible complexity of mortgage securitization, which no one fully understood, plus clueless rating agencies and the euphoric atmosphere of boom times -- and that's how you get a housing bubble. Or so argues Greenspan. And the Fed is blameless.

But, but, but, say his critics -- the bubble was so obvious! And you did nothing to stop it! To which Greenspan responds, in essence, yes. The Fed can do little to stop a bubble, or at least to stop it responsibly.

As the Financial Times' Martin Wolf, a Greenspan defender and former World Bank economist, has written, "The Fed could only have halted the U.S. bubble if it had been willing to put the economy into permanent recession." That's because strangling the boom would have required short-term rates as high as 10%, Wolf argues.

The reality of bubbles cannot be escaped, Greenspan believes. A central element of his worldview is that "bubbles are built into human nature." But why were the effects of this bubble so much more devastating than almost any other? The reason strikes at the heart of Greenspan's beliefs.

Indeed, if you're wondering how he's doing through all this, we've reached a part of the answer that's profound for a man whose life is largely the intellectual life. This bubble was catastrophic because self-interest failed. At Bear Stearns, Lehman Brothers, AIG (AIG, Fortune 500), Citigroup (C, Fortune 500), Merrill Lynch, and others, the firm's interest in its own profits should have stopped the housing bubble insanity. That's how the system is supposed to work. It didn't.

For America's most famous libertarian, an Ayn Rand acolyte, that is more than troubling. It's foundation-shaking. It put him into "shocked disbelief," he told Henry Waxman's House Energy and Commerce Committee in October 2008.

"I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works." David Henderson, an economist (and fellow libertarian) at the Hoover Institution, says, "Bartlett's Quotations, if it exists in 20 years, will have that quote in it."

Self-interest failed, Greenspan believes, mainly because no one, including himself, understood the costs of the extremely unlikely risks the big banks faced. "This is a once-in-a-century event," he says.

It may seem unsurprising that in those rare circumstances the banks disastrously misjudged their counterparties, mainly other institutions that owed them payments. But a central element of Greenspan's belief system was that such things don't happen. "Counterparty surveillance failed to protect the system this time," he says. "I always thought it would. I held that belief for 60 years."

Yet he doesn't believe tougher regulation by the Fed could have saved the banks. The problem in his view is that regulators would be much worse than the banks themselves at judging banks' counterparty risk. "I was on the board of J.P. Morgan (JPM, Fortune 500) prior to becoming Fed chairman," he says. "I knew what J.P. Morgan knew about Citi, Bank of America (BAC, Fortune 500), Wells, and others. When I arrived at the Fed, I quickly learned that J.P. Morgan's knowledge of those organizations was far greater than what the Fed knew."

Greenspan isn't opposed to more regulation, mostly fine-tuning. But on the central issue of self-interest, the safeguard that failed, he isn't giving up. He wants banks more exposed to market discipline by making sure that the "too big to fail" doctrine disappears. "Counterparty surveillance will remain the regulators' first line of defense," he says. The banks may have blown it, but now they've learned how to do it better, and that's what they must do.

As endless as the controversy is, it doesn't consume him. He has consulting clients -- Pimco, Deutsche Bank (DB), and Paulson & Co., the hedge fund that made billions betting on the housing bust. He still gives speeches (list price: $180,000). Conference organizers who have booked him believe his appeal has held up through the financial crisis. "Has he been tarnished? Maybe," says one from a major accounting firm. "But it really doesn't matter. People still want to see him in person. They want to go back to the office and say, 'Well, Alan Greenspan says ...'"

And Greenspan does have a life beyond the office. He and his wife, NBC News chief foreign-affairs correspondent Andrea Mitchell, do the Washington dinner circuit. He plays tennis.

Standing just behind the tumult of today's controversy is the matter of his legacy. What is the consensus view of him likely to be, say, 40 years from now? The best answer comes from Allan Meltzer of Carnegie Mellon University. The 1,300-page second volume of his history of the Fed has just been published (the 800-page first volume appeared in 2003).

His take: "Greenspan will be remembered for maintaining a long period of low inflation and stable growth punctuated by short recessions and followed by the error of believing that deflation was a problem. That caused him to keep policy too easy too long. But he did not force bankers to buy subprime. That was their decision, encouraged by a mistaken government housing policy that he testified against and the 'too big to fail' doctrine that he did not try to end. So if truth prevails, the deep crisis will be blamed on housing policy, 'too big to fail,' and the mistake by [Hank] Paulson, [Tim] Geithner, and Bernanke of letting Lehman fail without much warning after 30 years of bailing out large failures."

As an assessment, that isn't the king-of-the-world adulation Greenspan was getting four years ago, but it's not bad. It fits with his own often-quoted view that as Fed chairman, "I was praised for things I didn't do, and I'm now being blamed for things I didn't do." To top of page

Monday, December 14, 2009


Greenspan says the obvious

Nevermind the fact this guy is the reason Bernanke only has "blanks" to fire now.....


Fed can do no more to cut unemployment: Greenspan

Dec 13, 2009

WASHINGTON (Reuters) - The Federal Reserve has done all it can do to reduce unemployment and needs to worry more about the risk of inflation from the stimulus it poured into the economy, former Fed Chairman Alan Greenspan said on Sunday.

"I think the Fed has done an extraordinary job and it's done a huge amount (to bolster employment). There's just so much monetary policy and the central bank can do. And I think they've gone to their limits, at this particular stage," Greenspan said on NBC's "Meet the Press."

"You cannot ask a central bank to do more than it is capable of without very dire consequences," Greenspan continued, saying the United States faced a serious long-term threat of inflation unless the Fed begins to pull back "all the stimulus it put into the economy."

Greenspan, who headed the central bank from 1987 to 2006, also expressed concern about a congressional effort he said would "very significantly compromise" the Fed's independence.

The House of Representatives on Friday passed sweeping financial reform legislation that includes a provision allowing a congressional watchdog agency to audit the Fed's monetary policy operations.

That reflects concerns the Fed did not do enough to head off the worst U.S. economic downturn since the Great Depression.

"What you will be getting is a monetary policy more dedicated to political short-term considerations, not to the longer-term considerations which the Federal Reserve Act is specifically constructed to do," Greenspan said.

Greenspan said he expected the U.S. unemployment rate, which is currently at 10 percent, to "be significantly lower a year from now" but still very high.

The U.S. Census Bureau's plan to hire close to 800,000 workers by April will take several tenths of a percent off the unemployment rate, he said.

The recovery in the stock market over the last six to nine months helps by putting many individuals and companies in a stronger position to spend money, he said.

The Federal Reserve will have to begin raising interest rates from current very low levels as both the economy and loan demand improve, he said.

"Remember, loan demand has been very dull because businesses are very heavily liquidating inventories. That's coming to a halt and when that happens loan demand will come back and the pressures on short-term interest rate will begin to grow," Greenspan said.

Tuesday, November 10, 2009


Greenspan Says Stock Market Rally ‘Re-liquifying’ U.S. Economy

By Sonja Franklin

Nov. 9 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said a rebound in stocks is “re-liquifying” the U.S. economy and housing prices are showing early indications of ending their decline.

“We have been very fortunate that the stock markets moved back” and are “re-liquifying the whole process,” Greenspan said at an event in Edmonton, Alberta, presented by Abu Dhabi National Energy Co., the state-controlled energy producer known as Taqa.

The Standard & Poor’s 500 Index advanced 2.2 percent to 1,093.08, a sixth straight day of gains, and is up 62 percent from its low for the year on March 9. The Dow Jones Industrial Average added 203.52 points, or 2 percent, to 10,226.94, the highest close in 13 months.

The world’s largest economy is feeling the “maximum impact” now from the federal government’s $787 billion in fiscal stimulus, Greenspan said. He said a rebound in house prices might help avert another wave of foreclosures.

“It may be too soon, but all the relevant price indexes are turning,” Greenspan, 83, said. “Now whether or not that is temporary is very difficult to tell, because we have never been through anything like this.”

A gauge of home prices in 20 U.S. cities rose in August for a third consecutive month. The S&P/Case-Shiller home-price index climbed 1 percent from the prior month, seasonally adjusted, after a 1.2 percent increase in July, the group said Oct. 27.

Greenspan was appointed Fed chairman in 1987 by then- President Ronald Reagan and served until January 2006. He was succeeded by Ben S. Bernanke.

U.S. Growth

In the third quarter, gross domestic product expanded at a 3.5 percent annual rate after a yearlong contraction, Commerce Department figures showed Oct. 29. Household purchases increased 3.4 percent, the most in two years.

Greenspan said inventories are being drawn down as the economy recovers. Manufacturers will need to rev up production lines to prevent stockpiles from being depleted, he said.

“An ever-increasing part of your consumption must be met by industrial production,” rather than from inventories, he said, adding that this phase may extend into the second quarter of 2010. After that, the economic outlook “is going to depend to a very significant extent on what stock prices do.”

Through stocks comes a “wealth effect” from realized capital gains, he said.

Job Losses

U.S. payrolls fell last month more than the median forecast of economists surveyed by Bloomberg News, and the unemployment rate jumped to a 26-year high of 10.2 percent, according to a government report last week. The figures bolstered expectations the Fed is more likely to maintain its pledge to keep interest rates near zero.

The economy has lost 7.3 million jobs since the recession began in December 2007, the biggest drop since the Great Depression.

U.K. Chancellor of the Exchequer Alistair Darling, hosting a meeting of finance ministers from Group of 20 nations, said on Nov. 7 his colleagues decided to keep interest rates low and maintain record budget deficits until economic recoveries take hold.

Greenspan said the U.S. needs to address the country’s budget deficit.

“Our capacity to sell U.S. Treasury issues was never in doubt because we had a very significant cushion between federal debt on the one hand and the capacity to borrow on the other.”

With budget shortfalls projected, “that cushion is narrowing,” he said. “We are in a position where we have got to reign in” the national debt.

To contact the reporter on this story: Sonja Franklin in Calgary at

Last Updated: November 9, 2009 17:29 EST

Wednesday, August 19, 2009


Did Greenspan say "BUST"?

Greenspan predicts boom and bust (finally)

Former Federal Reserve chairman Alan Greenspan has predicted the US economy to mount a strong recovery for the rest of the year - before falling back again next year.

'I think we're OK for the next six months,' Greenspan told news agency Reuters in an interview. 'We are getting a recovery in (housing) starts and motor vehicles, but the process doesn't have legs to it.' (DID THIS CLOWN ACTUALLY SAY SOMETHING CORRECT FOR ONCE IN HIS "CAREER"?)

Car sales have been boosted from government efforts such as the $3bn 'cash-for-clunkers' trade-in scheme, although critics argue that it merely brings forward spending, robbing tomorrow's economy to pay for today's recovery.

Greenspan, who stepped down as Fed chairman in 2006 after 18 years, said the US market for motors was 'saturated', with 20% more cars and light trucks on the road than there are licensed drivers.

As for the property market, a sharp drop in the number of homes built is helping homebuilders clear inventory, but Greenspan said it was unlikely that the rate of home ownership would return to the peak of the boom years, which will keep home sales subdued.

While he was widely praised while as Fed chairman for presiding over the longest uninterrupted period of economic growth in modern US history, from 1991 to 2001, his record has recently come in for criticism for keeping interest rates too low allowing the consumer debt and property bubbles to inflate.(HOW CAN IT BE IN DOUBT BY ANYONE?)

Greenspan has defended his record repeatedly, saying global forces overwhelmed the US central bank's efforts to raise borrowing costs. He has also maintained that bubbles cannot be detected until they burst. (TOTAL NONSENSE!)

His confidence in a recovery this year is that demand for goods is running at 1.25 percentage points above the pace at which they are being produced. To close that gap, companies need to make more goods, which would generate gross domestic product growth of maybe 4% to 5% if it happened all in one quarter and 2.5% per quarter if spread out over six months.

A rebound in stock markets since March 2009 lows may also add some fuel to the recovery by helping companies obtain cheaper sources of funding and rebuilding household wealth.

'The 50% rise in corporate equities in the United States, and more than that in the rest of the world, has created an important buffer for debt,' he said. 'The consequent major contraction of yield spreads across the globe has added more fiscal stimulus than anybody realises.'

Tuesday, August 18, 2009


Greenspan gives us 6 months

Greenspan sees strong finish to 2009, worries on 2010

Mon Aug 17, 2009 6:40pm EDT

By Emily Kaiser

WASHINGTON (Reuters) - The U.S. economy is probably due for two strong quarters of economic growth to close out 2009, but the recovery may falter next year, former Federal Reserve Chairman Alan Greenspan said on Monday.

"I think we're OK for the next six months," Greenspan told Reuters in an interview. "We are getting a recovery in (housing) starts and motor vehicles, but the process doesn't have legs to it."

Auto sales and housing, normally the driving forces behind economic recovery, got a boost from government efforts such as the $3 billion "cash-for-clunkers" trade-in program, which encouraged consumers to buy new cars, but it may not be sustainable.

Greenspan, who stepped down as Fed chairman in 2006 after 18 years at the helm, said the U.S. market for autos was "saturated," with 20 percent more cars and light trucks on the road than there are licensed drivers.

With U.S. consumers' finances still shaky after three years of housing market declines, new vehicle sales may fade once the clunker program's cash is exhausted.

As for new home sales, a sharp drop in construction is helping homebuilders clear inventory, but Greenspan said it was unlikely that the rate of U.S. homeownership would return to the boomtime peak, which will keep home sales subdued.

While he has been lauded for presiding over the longest uninterrupted period of economic growth in modern U.S. history from 1991 to 2001, his record has recently come under harsher scrutiny.

Some economy watchers note that it was during Greenspan's tenure at the Fed that the housing bubble inflated.

Critics argue that under his leadership, the Fed kept short-term borrowing costs too low for too long after the 2001 recession, sowing the seeds of the housing and easy credit bubble that contributed to the financial crisis.

Greenspan has defended his record repeatedly, saying global forces overwhelmed the U.S. central bank's efforts to raise borrowing costs.

He has also maintained that bubbles cannot be detected until they burst. (BUNK!)

What gives him confidence that the last half of 2009 will generate strong growth is primarily a sharp drop in inventories of goods.

Consumption has been running about 1-1/4 percentage points above the level of economic output. In order to close that gap, companies need to make more goods, which would generate gross domestic product growth on the order of 4 percent to 5 percent if it happened all in one quarter and 2.5 percent per quarter if spread out over six months.

A rebound in stock markets since March 2009 lows may also add some fuel to the recovery by helping companies obtain cheaper sources of funding and rebuilding household wealth.

"The 50 percent rise in corporate equities in the United States, and more than that in the rest of the world, has created an important buffer for debt," he said. "The consequent major contraction of yield spreads across the globe has added more fiscal stimulus than anybody realizes." (THIS IS TOTALLY ARTIFICIAL & WILL DISAPPEAR AGAIN!)

Monday, August 03, 2009


Greenspan Bullish

Greenspan optimistic on US economic growth

Monday, 3 August 2009

The US economy could grow by up to 2.5 per cent this quarter, the former Federal Reserve chairman Alan Greenspan said.

His prediction yesterday was far more bullish than the 1 per cent growth expected by most economists. "The reason is there has been such an extraordinarily high rate of inventory liquidation that production levels are well below consumption, " Mr Greenspan told ABC television network.


Greenspan says "It's all good"

By: The Associated Press | 02 Aug 2009 | 09:54 AM ET
Text Size

WASHINGTON - Former Federal Reserve chairman Alan Greenspan says the economic downturn is not quite over but that the end is nearing.

Greenspan says that the health of the financial system has improved significantly. He says the collapse of the financial system is "off the table" after the system teetered for a while.

Greenspan expects unemployment and job losses to continue but at a slower rate.

The former Fed chief says the overwhelming response to the "cash for clunkers" program shows that confidence in the economy is picking up. The program gives car owners cash incentives for trading in older, less fuel-efficient cars for more efficient models.

Greenspan appeared Sunday on ABC television's "This Week."

Saturday, June 27, 2009


Greenspan will never understand

This guy proves he can't still figure out how he blew it and how the path of his replacement is just as misguided and possibly even worse - if that is possible.

He's as big as idiot as he ever was....

He is advocating ANOTHER equity bubble by his comments.



Inflation – the real threat to sustained recovery

By Alan Greenspan

Published: June 25 2009 15:49 | Last updated: June 25 2009 15:49

The rise in global stock prices from early March to mid-June is arguably the primary cause of the surprising positive turn in the economic environment. The $12,000bn of newly created corporate equity value has added significantly to the capital buffer that supports the debt issued by financial and non-financial companies. Corporate debt, as a consequence, has been upgraded and yields have fallen. Previously capital-strapped companies have been able to raise considerable debt and equity in recent months. Market fears of bank insolvency, particularly, have been assuaged.

Is this the beginning of a prolonged economic recovery or a false dawn? There are credible arguments on both sides of the issue. I conjectured over a year ago on these pages that the crisis will end when home prices in the US stabilise. That still appears right. Such prices largely determine the amount of equity in homes – the ultimate collateral for the $11,000bn of US home mortgage debt, a significant share of which is held in the form of asset-backed securities outside the US. Prices are currently being suppressed by a large overhang of vacant houses for sale. Owing to the recent sharp drop in house completions, this overhang is being liquidated in earnest, suggesting prices could start to stabilise in the next several months – although they could drift lower into 2010.

In addition, huge unrecognised losses of US banks still need to be funded. Either a stabilisation of home prices or a further rise in newly created equity value available to US financial intermediaries would address this impediment to recovery.

Global stock markets have rallied so far and so fast this year that it is difficult to imagine they can proceed further at anywhere near their recent pace. But what if, after a correction, they proceeded inexorably higher? That would bolster global balance sheets with large amounts of new equity value and supply banks with the new capital that would allow them to step up lending. Higher share prices would also lead to increased household wealth and spending, and the rising market value of existing corporate assets (proxied by stock prices) relative to their replacement cost would spur new capital investment. Leverage would be materially reduced. A prolonged recovery in global equity prices would thus assist in the lifting of the deflationary forces that still hover over the global economy. (So you're asking for another BUBBLE!)

I recognise that I accord a much larger economic role to equity prices than is the conventional wisdom. From my perspective, they are not merely an important leading indicator of global business activity, but a major contributor to that activity, operating primarily through balance sheets. (YOU MEAN A BUBBLE!) My hypothesis will be tested in the year ahead. If shares fall back to their early spring lows or worse, I would expect the “green shoots” spotted in recent weeks to wither.

Stock prices, to be sure, are affected by the usual economic gyrations. But, as I noted in March, a significant driver of stock prices is the innate human propensity to swing between euphoria and fear, which, while heavily influenced by economic events, has a life of its own. In my experience, such episodes are often not mere forecasts of future business activity, but major causes of it. (BULLSHIT, those were BUBBLES, of which you advocate another one forming!)

For the benevolent scenario (You're calling a BUBBLE BENEVOLENT???) above to play out, the short-term dangers of deflation and longer-term dangers of inflation have to be confronted and removed. Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge. If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012; earlier if markets anticipate a prolonged period of elevated money supply. Annual price inflation in the US is significantly correlated (with a 3½-year lag) with annual changes in money supply per unit of capacity.

Inflation is a special concern over the next decade given the pending avalanche of government debt about to be unloaded on world financial markets. The need to finance very large fiscal deficits during the coming years could lead to political pressure on central banks to print money to buy much of the newly issued debt.

The Federal Reserve, when it perceives that the unemployment rate is poised to decline, will presumably start to allow its short-term assets to run off, and either sell its newly acquired bonds, notes and asset-backed securities or, if that proves too disruptive to markets, issue (with congressional approval) Fed debt to sterilise, or counter, what is left of its huge expansion of the monetary base. Thus, interest rates would rise well before the restoration of full employment, a policy that, in the past, has not been viewed favourably by Congress. Moreover, unless US government spending commitments are stretched out or cut back, real interest rates will be likely to rise even more, owing to the need to finance the widening deficit.

Government spending commitments over the next decade are staggering. On top of that, the range of error is particularly large owing to the uncertainties in forecasting Medicare costs. Historically, the US, to limit the likelihood of destructive inflation, relied on a large buffer between the level of federal debt and rough measures of total borrowing capacity. Current debt issuance projections, if realised, will surely place America precariously close to that notional borrowing ceiling. Fears of an eventual significant pick-up in inflation may soon begin to be factored into longer-term US government bond yields, or interest rates. Should real long-term interest rates become chronically elevated, share prices, if history is any guide, will remain suppressed.

The US is faced with the choice of either paring back its budget deficits and monetary base as soon as the current risks of deflation dissipate, or setting the stage for a potential upsurge in inflation. Even absent the inflation threat, there is another potential danger inherent in current US fiscal policy: a major increase in the funding of the US economy through public sector debt. Such a course for fiscal policy is a recipe for the political allocation of capital and an undermining of the process of “creative destruction” – the private sector market competition that is essential to rising standards of living. This paradigm’s reputation has been badly tarnished by recent events. Improvements in financial regulation and supervision, especially in areas of capital adequacy, are necessary. However, for the best chance for worldwide economic growth we must continue to rely on private market forces to allocate capital and other resources. The alternative of political allocation of resources has been tried; and it failed.

The writer is former chairman of the US Federal Reserve

Wednesday, May 13, 2009


Mr. Clueless just won't shut up and go away

Greenspan Sees ‘Seeds of a Bottoming’ in U.S. Housing

By Vivien Lou Chen and Dawn Kopecki

May 12 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said that the decline in the U.S. housing market may be bottoming and it’s “very easy to see” financial markets continuing to improve.

“We are finally beginning to see the seeds of a bottoming” in the housing industry, Greenspan said today during a conference of the National Association of Realtors in Washington. The U.S. is “at the edge of a major liquidation” in the stock of unsold properties, which may help to stabilize prices, Greenspan said.

Home-sales figures in recent weeks have shown a slower pace of decline, and the slide in property prices has eased, according to gauges including the S&P/Case-Shiller index.

The former Fed chief, who was among the first prominent economists to warn about the risk of a recession in 2007, said housing prices could fall another 5 percent without putting too much strain on the economy.

“We run into trouble if it’s very significantly more than that,” Greenspan said. Housing prices remain “the critical Achilles’ heel” of the economy.

While the housing bottom may not be obvious in prices, it is becoming clear in “significant regional differences,” where some of the hardest-hit areas are starting to show signs of improvement, he said.

Greenspan said in congressional testimony in October that “a flaw” in his free-market ideology contributed to the “once-in-a-century” credit crisis.

Less Trouble

Today, Greenspan said companies are having less trouble raising money. U.S. firms have sold bonds at a record pace so far this year, including a $3.75 billion offering today from Microsoft Corp., the world’s largest software maker.

Wells Fargo & Co. and Morgan Stanley raised $16.6 billion in stock and bond sales on May 8, just a day after the government ordered them to raise capital, becoming the first banks to respond to the government’s mandate.

“Company after company has been raising capital and they are getting far more than they expected,” said Greenspan, 83, who left the Fed in January 2006 after almost two decades at the helm and has returned to his former role as a private economic forecaster.

With the expansion in market liquidity, “you begin to see, as we are seeing today, a very significant rise in the availability of money,” Greenspan said. As markets improve, “it’s very easy to see that it’s going to continue for an indefinite period,” he said.

Prices Fell

U.S. home prices fell the most on record during the first quarter from the prior year as banks sold seized homes and foreclosures persisted at a high rate in California and Florida. The median U.S. housing price fell 14 percent during the quarter to $169,000 year-over-year, the National Association of Realtors said earlier today.

U.S. banks held $26.6 billion of repossessed real estate at the end of 2008, more than doubling from a year earlier, according to the Federal Deposit Insurance Corp. in Washington.

Greenspan’s decisions as a central banker have come under scrutiny in recent years after the fall in home prices triggered a collapse in mortgage financing and other credit.

Under Greenspan’s leadership, the Fed left the overnight lending rate between banks at 1 percent from June 2003 until June 2004. Regional Fed presidents such as Gary Stern of Minneapolis and Janet Yellen of San Francisco have publicly questioned the Fed’s hands-off approach toward asset bubbles like the one that emerged in house prices during Greenspan’s tenure.

Kept Rates Low

Former Fed Vice Chairman Alan Blinder, Stanford University professor John Taylor and other economists say Greenspan’s approach of keeping rates low for an extended period helped to foster the housing bubble.

“I’ve always argued going back many decades that you do not capitalize a piece of real estate with overnight interest rates,” the former chairman said today in response to an audience question.

The housing market is instead fueled by a decline in long- term interest rates, which started a full year before the Fed began cutting the federal funds rate, Greenspan said.

“I think there is a recalibration of financial history that I find very puzzling,” he said.

Referring to his critics, he said, “I can say that I respectfully disagree. They’re wrong.” NO SIR, YOU ARE WRONG & YOU ARE TO BLAME!!!!!

To contact the reporters on this story: Vivien Lou Chen in San Francisco at; Dawn Kopecki in Washington at

Last Updated: May 12, 2009 18:04 EDT

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