Greenspan legacy: erosion of US financial strength From Mr K. R. Duncan. Sir, The triumphalism of US monetary and fiscal policies underlying a recent series of articles and comments published by the FT recently is as remarkable as it is unwarranted ("Greenspan's record: an activist unafraid to depart from the rules", Andrew Balls, August 22; "It is not freaky for growth to follow tax cuts", Amity Shlaes, August 22; and "Respect for a master banker's reading of the tea leaves", Kenneth Rogoff, August 24). We should not allow apologists for "activist" central bankers and "borrow and spend" politicians to use superlatives to describe the performance of the US economy until such time that the US economy can deliver superior growth on a foundation other than debt and dissaving. Since Alan Greenspan took office as Fed chairman, it has taken an average of $3.60 of debt growth to generate $1 of nominal gross domestic product growth versus a long-term average of approximately $1.5 to $1. Since the efficacy of the Greenspan Put was convincingly demonstrated in 1998, it has taken $4.72 of debt growth to generate $1 of nominal GDP growth. Since Mr Greenspan took office, the personal savings rate has declined from around 7.5 per cent to around 0.0 per cent and the money supply (here M0) has increased 334 per cent. And, while he has used rhetoric on occasion to warn of the dangers of fiscal deficits, his policies have supported the more than doubling of government debt over his reign. Mr Greenspan's legacy is the erosion of the financial strength of the nation. US central bankers are henceforth forever forbidden from "taking away the punchbowl".
Sir, The triumphalism of US monetary and fiscal policies underlying a recent series of articles and comments published by the FT recently is as remarkable as it is unwarranted ("Greenspan's record: an activist unafraid to depart from the rules", Andrew Balls, August 22; "It is not freaky for growth to follow tax cuts", Amity Shlaes, August 22; and "Respect for a master banker's reading of the tea leaves", Kenneth Rogoff, August 24).
We should not allow apologists for "activist" central bankers and "borrow and spend" politicians to use superlatives to describe the performance of the US economy until such time that the US economy can deliver superior growth on a foundation other than debt and dissaving.
Since Alan Greenspan took office as Fed chairman, it has taken an average of $3.60 of debt growth to generate $1 of nominal gross domestic product growth versus a long-term average of approximately $1.5 to $1. Since the efficacy of the Greenspan Put was convincingly demonstrated in 1998, it has taken $4.72 of debt growth to generate $1 of nominal GDP growth. Since Mr Greenspan took office, the personal savings rate has declined from around 7.5 per cent to around 0.0 per cent and the money supply (here M0) has increased 334 per cent. And, while he has used rhetoric on occasion to warn of the dangers of fiscal deficits, his policies have supported the more than doubling of government debt over his reign.
Mr Greenspan's legacy is the erosion of the financial strength of the nation. US central bankers are henceforth forever forbidden from "taking away the punchbowl".
JACKSON HOLE, Wyo. (Aug. 26) - Federal Reserve Chairman Alan Greenspan said Friday that the central bank is paying increasing attention to the rising prices of homes and stocks because they are having a growing impact on world economic activity. He warned also that the buying power fueled by higher prices for such assets could disappear if investors turn cautious. ... Such an increase in market value is too often viewed by market participants as structural and permanent," said Greenspan, who is due to step down as the U.S. central bank's chairman at the end of January. "To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy." But he said, that "newly abundant liquidity can readily disappear" if investors grow wary for some reason and demand a higher risk premium for lending.
... Such an increase in market value is too often viewed by market participants as structural and permanent," said Greenspan, who is due to step down as the U.S. central bank's chairman at the end of January. "To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy."
But he said, that "newly abundant liquidity can readily disappear" if investors grow wary for some reason and demand a higher risk premium for lending.
