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Friday, October 05, 2007

The Muddleheadedness of Alan Greenspan


It seems that the former Federal Reserve Chairman, Alan Greenspan, cannot stop babbling now that he is retired. But the former 81 year old Fed chief is as muddleheaded as ever.

In testimony before Congress in 2001, Greenspan gave a major boost to Bush's tax cut plan which mainly benefited the wealthy, irking Democrats.

But in his new book, "The Age of Turbulence", he bashes George W. Bush for not responsibly handling the nation's spending and racking up big budget deficits. And he acknowledges (approvingly) that the Iraq war had something to do with crude oil.

According to the Associated Press:

"My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending," Greenspan wrote.

Of the conflict in the Middle East, Greenspan said: "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."

Bush took office in 2001, the last time the government produced a budget surplus. Every year after that, the government has been in the red. In 2004, the deficit swelled to a record $413 billion.

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James Grant, editor of 'Grant's Interest Rate Observer', authored a critical review of the book in The Wall Street Journal last month (9/18/07). Some excerpts illustrate Greenspan's fuzzy thinking and less than stellar record as Fed chief:


"...Mr. Greenspan, a consulting economist of no special attainments (on the eve of the 1974 stock market collapse, he was quoted in the New York Times saying
"it is rare that you can be as unqualifiedly bullish as you can now)..."

"...the work he performed as chairman of the Federal Reserve from 1987 to 2006, in all but name, was price-fixing. It consisted...of setting an interest rate and shoving it down the throat of the world's largest economy. It is mighty strange work for a 'libertarian Republican,' as the Maestro styles himself here, let alone a former worshipful member of the inner circle of the radical individualist Ayn Rand."

"Mr. Greenspan notes, 'it did not seem like a job I felt equipped to do; setting interest rates for an entire economy seemed to involve so much more than I knew.' "

"...Nowhere in the book does Mr. Greenspan own up to his role of ... dangling the most beguiling teaser rate of all during the mortgage rate frolics of 2004--i.e., that 1% federal funds rate. In February 2004, only months before the Fed started to raise its rate, in a speech titled "Understanding Household Debt Obligations," Mr. Greenspan domonstrated next to no understanding. His advice to American homeowners was not that they lock in a fixed-rate mortgage while the locking was good, but rather that they consider an adjustable-rate model. He who set the rates got it backward."

"...To fend off the peril of low and lower everyday prices, the Fed pressed its interest rate all the way down to 1% in 2003 and kept it there until mid-2004. Now it was house prices that went into orbit...Readers who got one of the fancy new teaser-rate mortgages in 2003 or 2004, and who have lived to rue the day, are unlikely to find much nourishment in Mr. Greenspan's discussion of the theory of financial bubbles or in his self-exculpating account of the Fed's role in financing them with artificially low interest rates..."

"...At one point during his long interview on "60 Minutes" Sunday evening, Alan Greenspan could be seen autographing dollar bills for his smiling fans. Meanwhile, off-camera, unautographed greenbacks continue to depreciate against a variety of metals and foreign currencies. Striving to understand why people trusted it in the first place, historians will naturally reach for the memoirs of the foremost central banker of his day. But Mr. Greenspan's "The Age of Turbulence" will leave them just as confused as they ever were..."

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MrKen notes that Greenspan admitted to often being disingenuous during his many appearances before Congress. In the '60 Minutes' interview, as well as others, he indicated his strategy for questions that he couldn't or wouldn't answer. He admitted retreating into his "Fed-speak" mode of obfuscation--hoping to confuse the questioner or even making him forget that his query had not been answered!

To read the full Associated Press article of Alan Greenspan go here:
http://www.iht.com/articles/ap/2007/09/15/business/
NA-FIN-US-Greenspan-Book.php


To read James Grant's complete book review, follow this link:
http://online.wsj.com/article/SB119006999885230401.html



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