Posted on 01/12/2005 6:32:22 AM PST by tmp02
NEW YORK - Alan Greenspan, that Matador of the Money Supply, the esteemed Impresario of Interest Rates, has suffered precious few slings or arrows over his many years as chairman of the Federal Reserve. Even the White House has had to offer its critiques off the record for fear of roiling the markets or upsetting the chairman's Elvis-in-Vegas-like following. So when the chief economist of one of the world's most prestigious banks calls Greenspan a bum, that's a big deal.
And yesterday it happened. Stephen Roach, the chief economist for Morgan Stanley & Co. (nyse: MWD - news - people ), 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.
The "economic brink" line is from the headline of a press release sent by Foreign Policy. In an interview this morning, Roach said, "That's a little extreme." He does admit the nation has prospered on Greenspan's watch. Still, he does not disavow the haymakers he directs at the chairman's chin.
"This is no way to run the global economy," Roach says. So far, the Fed has bucked the odds, Roach adds. But the longer the situation exists, the more chance there is that it will spell danger for the United States and the world.
Roach lays the blame for the peril at Greenspan's door. But first he takes out after his outsized reputation. Greenspan is not responsible for defeating inflation in the 1980s; Paul Volcker, his "tough and courageous predecessor," deserves more of the credit, Roach says. Greenspan's monetary policy deserves some accolades for the 1990s boom, but former President Bill Clinton's fiscal policy and other factors were equally responsible, Roach says. Greenspan may deserve some praise for softening the recession that followed the stock market meltdown, Roach concedes, but the chairman's cure may result in "bigger problems down the road" and "the biggest bubble of all: residential property."
Many have credited Greenspan with saving the world following the 1997-98 Asian financial crisis. Time magazine went so far as to put the gnome of Constitution Avenue on its cover, under the headline "Committee to Save the World." Though it is the case that the world did not end, "In truth, the world weathered the Asian financial storm only to chart increasingly dangerous waters in the years that followed," Roach writes. "Global economic imbalances have intensified dramatically since 1999."
A good chunk of the U.S. prosperity is owed to these imbalances, Roach says: "Asian countries holding enormous stocks of U.S. dollars recycle this cash back into the United States by buying U.S. [Treasury bills]. This process effectively subsidizes U.S. interest rates, thus propping up U.S. asset markets and enticing American consumers into even more debt. Awash in newfound purchasing power, Americans then turn around and buy everything from Chinese-made DVD players to Japanese cars."
While the economist has nothing against DVD players, he does say, "Asia and Europe are increasingly dependent on overly indebted U.S. consumers, while those consumers are increasingly dependent on Asia's interest-rate subsidy. The longer these imbalances persist, the greater the likelihood of a sharp adjustment. A safer world? Not on your life."
Roach even questions Greenspan's political independence. He does not claim the chairman is a partisan Republican, but he does fault him for being a "cheerleader for policies such as tax cuts...that could make the endgame all the more treacherous."
Greenspan is to central banking what J. Edgar Hoover was to fighting crime. He will soon surpass the fondly forgotten William McChesney Martin as the longest-serving Fed chairman. But his term as a member of the Federal Reserve Board of Governors expires in just over a year from now, and America will have to do without. Roach says, "Greenspan will be a tough act to follow." But the difficulty may not be living up to the chairman's reputation so much as cleaning up his mess.
Rah Rah Rah!
Both the government and consumers spend too much. Roach is just pointing that out. A reckoning is coming, as it always has in the past. Greenspan has employed extraordinary measures to stave it off - we should have had a full correction in 2000-2002. How much longer can he do it?
Well, that's it. I'm charging up all my credit cards!
Ah, so we should be taxing ourselves into a better prosperity. Gotcha.
Meanwhile, every dollar given back to the taxpayer/consumer is a dollar not charged on an Asian-backed credit card. Go figure.
If cutting taxes means higher deficits, as it has over the last 3+ years, then every dollar in tax cuts does indeed translate to another dollar put on the asian-backed credit cards. I believe that interest on the debt is now the 2nd largest federal outlay. Take a look at the taxes you paid the federal government last year, 30% or so of it went to pay interest on the debt, and the largest holders of U.S. debt are China and Japan.
Would someone please explain to me - within the framework of the US Constitution - why it is that we even have a "Federal Reserve" that is in fact operated by a group of international bankers who have absolutely NO accountability to the US taxpayers, yet essentially run all of our economic futures?
Cutting taxes does not mean higher deficits. Spending more makes higher deficits. Perhaps if we eliminate a couple of departments and RIF a couple hundred thousand Federal freeloaders we could cut down the deficit and provide a ready source of labor to displace the immigrants now flooding the nation.
I'm sorry, but your suggestions make way too much sense, and must therefore be censored before too many decision making individuals read them. Please report yourself to the moderators for the adequate unjust punishment. /pseudo sarcasm
Spending more WHILE cutting revenue = higher deficits. They are both part of the equation
Perhaps if we eliminate a couple of departments and RIF a couple hundred thousand Federal freeloaders we could cut down the deficit and provide a ready source of labor to displace the immigrants now flooding the nation.
Don't hold your breath. Remember, we need to fully fund no child left behind and medicare expansion!
'Cuz they can.
Our job, as Conservatives, is to bring America back into line of the founmder's intentions.
Limited government,
No taxation without representation (I was never asked, via referendum, to OK the 'emissions control' test ... 20 - 50 bucks a pop, depending)
No National bank (especially an INTERNATIONAL one)
More contemporarily ... get rid of the UN
and a whole bunch of et cetera's.
What have you been smoking? Tax cuts always increase revenues! It frees up more disposeable income for citizens to spend and invest thereby stimulating the economy.
Read this
...and this
...and this
Cutting taxes also does not necessarily translate into lower tax revenues, something that was demonstrated during the 1980's.
Maybe China has the answer?
In absolute numbers no, if you cut taxes revenues will still rise due to other factors. However, revenues will not rise as much as they would have had taxes not been cut.
If you want to test your logic, would you argue that cutting federal taxes down to say, $1.00 per person per year would lead to an increase in federal tax revenues?
BTTT
This process effectively subsidizes U.S. interest rates, thus propping up U.S. asset markets and enticing American consumers into even more debt. Awash in newfound purchasing power, Americans then turn around and buy everything from Chinese-made DVD players to Japanese cars."
but he does fault him for being a "cheerleader for policies such as tax cuts...that could make the endgame all the more treacherous."
Why would you be against Tax Cuts if Americans are in debt?
In an interview this morning, Roach said, "That's a little extreme." He does admit the nation has prospered on Greenspan's watch. Still, he does not disavow the haymakers he directs at the chairman's chin.
I don't agree with everything Greenspan and the administration has done fiscally, but this guy sounds like a jackass and wants attention.
"Drink and dance and laugh and lie,
Love, the reeling midnight through,
For tomorrow we shall die!
(But, alas, we never do.)"
Dorothy Parker
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