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[$].
Water over the dam, I suppose. But if the Fed was a key cause of the problem, what does this say about what the Fed should be doing going forward?
One thing I think is good about the European Central Bank is that they only have one mandate... to maintain a stable value of the Euro (i.e., avoid debasement/inflation).
In the case of the US Federal Reserve it has several mandates: "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
Easier said than done. These mandates are often at cross purposes.
We have had a chronically weak dollar and serial asset bubbles (isn't that known as inflation?). Now we have a weak dollar and high unemployment. And the Fed is now maintaining low interest rates by buying US treasuries and printing dollars - surely a new disaster in the making. And now we have calls by the Chinese, Russia and others for a new reserve currency to replace the dollar. So on what basis can one say that the Fed has done a good job since Alan Greenspan took over from Paul Volker?
Then on March 9, Greenspan responded with his own WSJ editorial blaming the Chinese saving rate as the root cause. MORE[$].
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...
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