Click on a language flag to translate this blog:

Friday, March 27, 2009

Is Greenspan to Blame?

In a WSJ editorial on Feb 11, John Taylor of Stanford University laid the blame at Alan Greenspan's feet. Taylor and Greenspan had been long time friends. Perhaps no more. MORE[$].

Then on March 9, Greenspan responded with his own WSJ editorial blaming the Chinese saving rate as the root cause. MORE[$].

Today, the WSJ has a series of economists give their views on the controversy. The vast majority point the finger at Greenspan. MORE[$].

Water over the dam, I suppose. But if the Fed was a key cause of the problem, what does this say about what the Fed should be doing going forward?

One thing I think is good about the European Central Bank is that they only have one mandate... to maintain a stable value of the Euro (i.e., avoid debasement/inflation).

In the case of the US Federal Reserve it has several mandates: "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

Easier said than done. These mandates are often at cross purposes.

We have had a chronically weak dollar and serial asset bubbles (isn't that known as inflation?). Now we have a weak dollar and high unemployment. And the Fed is now maintaining low interest rates by buying US treasuries and printing dollars - surely a new disaster in the making. And now we have calls by the Chinese, Russia and others for a new reserve currency to replace the dollar. So on what basis can one say that the Fed has done a good job since Alan Greenspan took over from Paul Volker?

And here Greenspan defends himself on 60 Minutes...

No comments:

Post a Comment