The Big Interview With Alan Greenspan: ‘Prove I Was Wrong’
I saw this video before but after reader Rick e-mailed it to me I decided to post it. The headline is the interesting part. Greenspan believes the double dip scenario has been off the table for a number of months and that the wealth effect (presumably resulting from quantitative easing) is now kicking in and lifting consumer spending.
Greenspan does not believe he bears any responsibility for the financial crisis and asks critics to "prove" he was wrong. For an alternative take on this, also see my post "Greenspan: Hate Him, Hate Him".
I remember when Greenspan was idolized as, if not God, a financial angel – the Committe to Save the World, 20 years of growth, The MAESTRO, CNBC engaging in what could only be called obsequious *ss kissing hourly. I remember thinking when everybody thinks so highly of you, at some point everybody will think lowly of you.
I have no doubt that Greenspan is guilty of most charges against him, and many people at the bottom bear no responsiblity yet suffer tremendously because of his philosphy. Yet what does it say that he was idolized by so many for so long?
Well, I think the answer is pretty simple, but very troubling – people love a party. Don’t we still believe that we can get out of our troubles with little sacrifice and few hard decisions? Its not solvency – its just Liquidity!!! Make lots of money available and everything will be OK! (am I the only one that sees deja vu all over again????)
I remember when Greenspan was idolized as, if not God, a financial angel – the Committe to Save the World, 20 years of growth, The MAESTRO, CNBC engaging in what could only be called obsequious *ss kissing hourly. I remember thinking when everybody thinks so highly of you, at some point everybody will think lowly of you.
I have no doubt that Greenspan is guilty of most charges against him, and many people at the bottom bear no responsiblity yet suffer tremendously because of his philosphy. Yet what does it say that he was idolized by so many for so long?
Well, I think the answer is pretty simple, but very troubling – people love a party. Don’t we still believe that we can get out of our troubles with little sacrifice and few hard decisions? Its not solvency – its just Liquidity!!! Make lots of money available and everything will be OK! (am I the only one that sees deja vu all over again????)
If interest rates could explode higher and we all know this, why would he argue that stock prices are undervalued?
Isn’t it more than just a little scary that the hope for the economy being solidified is based upon volatile and flippant stock prices?
If interest rates could explode higher and we all know this, why would he argue that stock prices are undervalued?
Isn’t it more than just a little scary that the hope for the economy being solidified is based upon volatile and flippant stock prices?
Greenspan still misses the point that the profits growth the last two years came from cost cutting not productivity from investment. Much of the business investment recently had been overseas where the growth prospects are.
US consumers are still in too much debt and that will take years to clear, unless it is written off.
Higher interest rates will be necessary to reduce speculation. It will also get asset prices back to a more realistic level. That is not good for the S&P. If people can get 5% risk free from a bank they will need a lot more from a stock, whether it is capital appreciation or dividends, because of the downside risks.
The banks solvency has not been solved by huge injections of liquidity. They have simply delayed the inevitable.
I agree. It is true that productivity has increased, but that is because businesses have cut costs and scaled back on employees. Of course you will get more productivity if you cut employees while meeting the same demands as before. I agree with him that we need productive jobs, but part of that comes from realizing what people willingly want now and in the future. I would like to see a move away from administrative and paper pushing jobs that are simply a pay check for accomplishing nothing of value.
Thankfully Kelly called him out on excitement for higher stock prices (the wealth effect), while simultaneously having a fear of inflation sometime in the next few years. If the FED starts selling securities along with an increase in interest rates, I don’t see how the stock market could continue its climb. One of the main reasons it is on the rise is because other investment vehicles like bonds yield far too little short term, and the long term yields look to be too low given the threat of inflation. This is mainly the FED’s doing because their funds rate is a whopping 0.25%. She also called him out on the typical favoritism of inflation over deflation, and Greenspan rejected the idea that he and the FED in general have instigated credit bubbles.
Yes the US do need more productive jobs and maybe the only way of getting them is to create domestic demand. Some form of debt cram down would enable US consumers to be able to spend again. Higher transport costs will make local production more cost effective. $100 a barrel oil is a step in the right direction.
Regulations re renewable energy could create local demand for windmills and solar power generation. It would reduce oil imports as well.
Import substitution might be a good solution but with globalisation that might be pointless, if companies can keep production offshore, and play one state against another through subsidies. It will be a game that the US cannot win. It will not be able to afford to pay the subsidies.
Longer term I can see many governments might see protectionism as a solution to local unemployment. Capital controls which can help other countries stop the inflow of QE created dollars swamping the local economy. If the US had capital controls it would stop US corporations exporting jobs so easily.
The wealth effect is illusory. I never believed it. I think that the wall of money needs to get returns better than zero rates from banks makes the stock markets attractive, much has flowed offshore, creating bubbles in overseas markets. Higher bank rates will show that the stock markets are vulnerable. Low rates made Bernie Madoff’s fund possible, as people needed higher returns. A permanent zero interest rate policy will destroy savings overall.
Greenspan still misses the point that the profits growth the last two years came from cost cutting not productivity from investment. Much of the business investment recently had been overseas where the growth prospects are.
US consumers are still in too much debt and that will take years to clear, unless it is written off.
Higher interest rates will be necessary to reduce speculation. It will also get asset prices back to a more realistic level. That is not good for the S&P. If people can get 5% risk free from a bank they will need a lot more from a stock, whether it is capital appreciation or dividends, because of the downside risks.
The banks solvency has not been solved by huge injections of liquidity. They have simply delayed the inevitable.
I agree. It is true that productivity has increased, but that is because businesses have cut costs and scaled back on employees. Of course you will get more productivity if you cut employees while meeting the same demands as before. I agree with him that we need productive jobs, but part of that comes from realizing what people willingly want now and in the future. I would like to see a move away from administrative and paper pushing jobs that are simply a pay check for accomplishing nothing of value.
Thankfully Kelly called him out on excitement for higher stock prices (the wealth effect), while simultaneously having a fear of inflation sometime in the next few years. If the FED starts selling securities along with an increase in interest rates, I don’t see how the stock market could continue its climb. One of the main reasons it is on the rise is because other investment vehicles like bonds yield far too little short term, and the long term yields look to be too low given the threat of inflation. This is mainly the FED’s doing because their funds rate is a whopping 0.25%. She also called him out on the typical favoritism of inflation over deflation, and Greenspan rejected the idea that he and the FED in general have instigated credit bubbles.
Yes the US do need more productive jobs and maybe the only way of getting them is to create domestic demand. Some form of debt cram down would enable US consumers to be able to spend again. Higher transport costs will make local production more cost effective. $100 a barrel oil is a step in the right direction.
Regulations re renewable energy could create local demand for windmills and solar power generation. It would reduce oil imports as well.
Import substitution might be a good solution but with globalisation that might be pointless, if companies can keep production offshore, and play one state against another through subsidies. It will be a game that the US cannot win. It will not be able to afford to pay the subsidies.
Longer term I can see many governments might see protectionism as a solution to local unemployment. Capital controls which can help other countries stop the inflow of QE created dollars swamping the local economy. If the US had capital controls it would stop US corporations exporting jobs so easily.
The wealth effect is illusory. I never believed it. I think that the wall of money needs to get returns better than zero rates from banks makes the stock markets attractive, much has flowed offshore, creating bubbles in overseas markets. Higher bank rates will show that the stock markets are vulnerable. Low rates made Bernie Madoff’s fund possible, as people needed higher returns. A permanent zero interest rate policy will destroy savings overall.