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Originally Posted by SAT
Jaybee, LivinLOS perhaps judging Greenspan a little harshly - consider the alternatives. If post 9/11 he hadnt eased rates then slow down globally would have most likely been severe - and despite the so called housing bubble this is not of great concern as population growth and demographics mean that US will continue to see demand pull for housing. Fair to say that American home owners have used refinancing to service further consumer spending but would you advocate a squeeze in rates to choke of spending - thus growth?
Greenspan led Fed has been the most successful ever in stabilising growth/recession cycle - mean reversion of -2% - +5% q/q growth is impressive taking any long term central bank record into account.
While I feel stats gathering is 'rigged' to some degree espcially in relation to CPI and PPI - not truely reflecting inflation for the ave. guy on the street - despite this inflation has been pretty contained.
Fed's role primarily is to stamp on inflation - to 'maintain price stability' in this its hard to argue they have failed on that front. Asset price inflation comes and gets corrected and no central bank can control everything.
By far more potential damage comes from the enormous budget deficit - was it not for (mainly Asian) central banks buying treasuries then long end rates would make 4.5% 10 yr yields look way to cheap - something like 6% would be more 'normal'.
Seriously would you want Volker back? - dont think would like the recession his policy style would cause - post Greenspan perhaps Reuben would be a good choice.
PS - We must all be having too much spare time to endulge this thread!
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It is interesting to hear someone speak in defense of Greenspan. What you say makes perfectly good sense, and is typically American logic.
But it is the logic of putting off the bitter pill by dosing yourself with sugar, and hoping you will never suffer for it. Put off the day of reckoning as long as possible, and say what a wonderful job we've done of putting off the day of reckoning.
The nature of economies are expansion followed by consolidation and contraction. When you extend and extend an expansion period by artificial means such as handing out free money for people to spend to keep the economy afloat, you reward imprudent financial planning. It is a policy of spend, spend, spend. Reward the borrowing and punish the saving. Reward profligate financial behavior and penalize sound, reasonable behavior.
Volcker stamped out inflation, and imposed a harsh recession on America. It was the right thing to do. It rewarded the people who were careful, didn't overextend themselves, and stuck to sound business principles. The people who are too loose with their finances, and get overextended get whacked in that kind of scenario. It is Darwinian economics. The weak companies perish and the strong are rewarded by picking up the business that the bankrupt companies ar no longer there to service.
The recession of 81-82 was deep, sharp, and painful. And it laid the groundwork for nearly 20 years of prosperity that followed. That prosperity was real and brought about the long-dreamed about balanced budget that many had thought they would never see again in their lifetimes. When the budget is balanced, then there is plenty of captial for lending, investment, and growth, because the government isn't sucking up all the money. The availability of capital is real, and interest rates are reasonable, because people need to get a return on their capital.
Under the Greenspan regime since 2001, the availability of capital is contrived. Money is printed up and shelled out. It is a giveaway, which encourages speculation, and creates a false sense of prosperity.
It is as if you or I quit our jobs, applied for 2 dozen credit cards, all with $25,000 credit limits and then went to LOS and lived like billionaires for a year, charging everything. We would be well-f*cked when we reached our limits, and got back home to no job with no rent money. Our lives would be f*cked up for years trying to repair the damage.
Obviously govts. can get a way with a lot of things that we can't, but someone always gets screwed in the end. Because putting off a recession is not a good excuse for unsound fiscal policy that will create deficits and imbalances that will make problems for this economy for a decade to come.
Volker and Clinton(fiscal restraint/military budget cutting) put our house in order. Bush and Greenspan(loose money/military expansionism) have really messed it up. In the future the job is left to someone else to clean up the mess. In the end there are no free rides. Someone has to pay the piper.