So Alan Greenspan, who had his finger on the pulse of the U.S. economy for about two decades as Federal Reserve chairman, has the unmitigated gall to say with a straight face that the country’s housing bubble has nothing to do with him and his policy decisions, but rather stems from globalization.
Sorry, but there aren’t enough :rolleyes: s in the world to give that steaming pile of crap the treatment it deserves. Three years * of negative real interest rates had nothing to do with house prices rising? Instead it was the entry into the world economy of all those Chinese and Indian workers? What bullshit. Globalization may have helped to create room to cut interest rates by reducing inflation, but no one forced the Fed to move real rates into negative territory.
And when Greenspan was asked whether a rate rise could have stopped the stock-market bubble of a decade ago, whose collapse prompted the rate cuts that led to the housing bubble, he was blatantly disingenuous again. By focusing on the harm to the economy that would have resulted from a rate increase 10 years back, he neatly avoided mentioning that the Fed could have raised the rates charged for the margin loans that many people use to buy stocks, which it controls. That could have stopped the stock market in its tracks without harming the broader economy. Thanks for leveling with us, maestro.
*The real interest rate is what one gets when one subtracts inflation from the interest rate at which one is borrowing. Real rates are negative when money is lent at an interest rate that’s lower than inflation. That was the case at least between December 2001 and November 2004, when the Fed’s benchmark rate for overnight loans between banks was below 2%. That is, banks essentially could borrow money for free because they were being charged less than the rate of inflation. When banks can borrow for free, they will, after which they will try to lend that money out at interest, often in the form of mortgages, that being what banks do.
He has suddenly discoverered that the gap between rich and poor is getting wider . He also has discoverered that it is inherently dangerous to allow . He was responsible and knew better.
I’ve never been a big fan of Greenspan’s, but I must partially defend him here. The Fed can only use short term rates as a lever. Longer term rates are driven by market forces. Looking at today’s yield curve gives a great demonstration of this. At this moment, 3-month Treasuries are yielding 5.03%, while 5-year Treasuries are yielding 4.76%. This is your classic inverted yield curve. What’s happening is that the Fed is trying to fight inflation by repeated short term rate increases, while the markets simply don’t believe that the economy will be strong in the near future. Additionally, China keeps buying our debt on the cheap, further keeping rates down.
So to the extent that cheap short-term cash caused people to enter into variable rate mortgages, Greenspan can be held responsible. But the longer term low fixed rates can’t be tied to him directly.
I’m just dropping in to admire ColonelDax’s spunky efforts to raise the intellectual tone of the Pit by ranting about serious financial/economic issues: first the impact of the recent Dow Jones record, and now the effect of interest rates on the housing market (complete with footnotes, no less).
Sorry about the low turnout. If we didn’t have to spend so much time around here addressing issues of political slimeballery, annoying commercials, and the revolting personal habits of mannerless louts in public places, we’d be all over these threads, I tell ya!
Seriously, Colonel, I think these are great topics and I’d love to see them discussed further, but I’m not sure the Pit is where they’ll be best appreciated. Have you considered toning down the invective a bit, faking an attitude of impartial inquiry, and rephrasing them as Great Debates?
Nah, there’s a lot about Greenspan’s tenure that is pitworthy. He really dropped the ball at least with the dotcom bubble, and he could’ve done more to prevent the housing market going nuts. I think he is right to blame the gap between rich and poor at least partly on globalization, and that he’s right to think it’s a bad thing, but he should’ve done more.
Greenspan’s whole prblems is that he fell into that economic elitist trap of thinking that if large corporations and their wealthy shareholders are doing well, it doesn’t matter of the rest of us aren’t. Which is certainly what has been happening in the last few years. But it’s a very easy trap to fall into, when you are wealthy and all your friends are wealthy. The economic health and vigor of the middle class and its size in proportion to the lower class is the true barometer of a society’s wealth (it should be a lot bigger than the lower class). Letting the wealthy loot the middle class has been his great failure. He has prevented inflation on his watch, but that’s about all he’s done.
[Lou Grant]
“You’ve got spunk … I hate spunk.”
[/Lou Grant]
Thanks, Kimstu, I’m just relieved not to be having my head handed to me. The low turnout doesn’t bother me; I realize these posts don’t exactly appeal to the widest audience. You’re no doubt correct that more replies would accumulate in GD, and I have tried starting an economic thread or two there in the past. In the cases of this thread and the Dow Jones thread, I was simply sufficiently irritated both times to go to the Pit instead.
