Thursday, January 13, 2005

Alan Greenspan has driven world to the brink of ruin

I don't want to be one of those bloggers that just copies some text from a news story and calls it a blog post (that's mostly what Michelle Malkin does), but I don't have much time to write a big post right now, and this is pretty interesting stuff.

From Forbes.com:

Stephen Roach, the chief economist for Morgan Stanley & Co. (nyse: MWD), one of the most powerful investment banks and one of the 50 largest companies in the world, says Greenspan has "driven the world to the economic brink."

Writing in an upcoming issue of Foreign Policy, Roach says that when Greenspan steps down as chairman of the Federal Reserve next year, he will leave behind a record foreign deficit and a generation of Americans with little savings and mountains of debt. Americans, Roach says, are far too dependent on the value of their assets, especially their homes, rather than on income-based savings; they are running a huge current-account deficit; and much of the resulting debt is now held by foreign countries, especially in Asia, which permits low interest rates and entices Americans into more debt.

29 comments:

Mr. X said...

It appears that Ackman is parroting Roach who is blaming Greenspan for the poor economic policies of the Administration and the bad financial habits of the American people. In response, one should note that Greenspan has decried the "irrational exuberance" of the bubble years and called out the Administration for their spendthift policies.

The guy has one vote on a board of people who control interest rates. Yes, that's a powerful position, but it's naive to lay all the blame at his door.

Yours truly,
Mr. X

...unlikely apologist...

Ricky said...

Pitty you didn't say what you, as a libertarian think about the issue. If Americans want to spend themselves into debt, go ahead would probably be your answer.

Ah besides, the dollar exchange rate will take care of the inbalances.

The New Democrat

Libertarian Girl said...

Ricky, our government's policies encourage debt. There's the home mortgage interest tax deduction which has contributed to the problems Roach complains about, and the federal government is practically forcing student loans onto college students ensuring that my whole generation already starts out in debt.

Government should let the free market decide if college education or home ownership makes sense.

Aaronlane said...

Yes indeed, let the bashing of Lord Greenspan begin in earnest now.

Since his time is nearly up it's time for every journalist who has ever had an economics class to weigh in. Even worse are those of us trained in economics with access to the media who will second guess the last dozen years of monetary policy.

It's like insulting the biggest guy in the bar as he's walking out the door.

Alan has done a fine job. Not a perfect job, but it's not a perfect world. He has no control over fiscal policies that spend us into massive deficit number one. He cannot force the many Congresses since he began his term to stop spending like drunken sailors. That would take an act of God.

He has no influence over US trade policy and little influence over capital markets and regulations that influence foreign direct investment. Thus it's difficult to lay the blame for deficit #2, the current account deficit at his feet.

The third jewel in the triple crown of deficits is of course consumer debt. Here we can say that low interest rates foster large amounts of borrowing, and Alan is to blame. I say that his interest rate policy is merely a reflection of the larger current ideas about the value of loanable funds.

Alan doesnt decide how badly you want to buy a house. He doesnt decide if you get the Civic or the M3. You do. You might make spending and borrowing decisions on the margins based on the costs of those loans but going into debt is still your fault.

The less government intervention we have into capital markets, trade, investment and banking; the better off we would be. But if we have to have a central banker, Greenspan wasn't a bad one. Nearly a generation has grown up without fear of massive inflation. That's not a bad accomplishment, even if he cant take much credit for it either.

It's unfortunate that Milton is getting up there in years since a replacement is needed soon. May I suggest N. Gregory Mankiw? Robert Barro?

I can only hope that Alan goes back to New York and takes up his previous job as a jazz musician in bars and nightclubs. I would love to hear him play another set.

What would Ayn think of him now...

R said...

"...federal government is practically forcing student loans onto college students ensuring that my whole generation already starts out in debt."

WHAT?!? Would you care to at least post some compelling reasoning behind this otherwise vapid rhetoric?

Jacqueline Mackie Paisley Passey said...

I don't know what Libertarian Girl meant about forcing the loans onto students, but I can tell you if you want to get almost any job on campus and a good number of the jobs available to students off campus, you have to go through Work Study. To get Work Study you have to fill out a FAFSA financial aid application form, and if then if they decide you're eligible for a loan they'll stick the loan amounts on your school account, you have to take an extra step to go in and tell them you don't want them. At least that's how they did it at my old school.

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