Alan Greenspan on the Bubble and Janet Yellen's Big Mouth

A-ha! He may be a homicidal maniac but Alan Greenspan and I can agree on one thing: Janet Yellen sucks.

Business Week:

Alan Greenspan disputed suggestions by his former central bank colleague and current San Francisco Federal Reserve Bank President Janet Yellen that the Fed could have headed off the housing bubble by raising interest rates.

“The general notion the Fed was propagator of the bubble by monetary policy does not hold up to the evidence,” the former Fed chairman said in an interview on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend.

Alright, so the beef jerky bastard is wrong and in denial but at least he agrees with me. Too bad it's on the one point Janet has ever made that is correct.

Let it be known Greenspan will admit the Fed may have missed the bubble but in his shriveled brain, it had absolutely nothing to do with exceptionally low interest rates nor his easy money whoring.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


David said...

It's a strange coincidence, when Greenspan started, to meddle with rates to "cool off" the markets in 1998, it was all down hill, form there. We had a Dow 10,000 and 4% yields from banks that use to compete for our dollars in a healthy economy, with alot of liquidity. Now we have a Dow 10,000brought on by Govt' stimulis and an easy money policy and an economy that has virtually no liquidity on Main Street and the highest un-employment rate since the Depression.
Since 1998 we've seen our commodity prices, brought on by easy money, get so high it has virtually, sucked all the liquidity out of Americans wallets, and created states like California to go further in debt, even though they are cutting services. And our health care system is considerably higher. People are blaming insurance companies for higher cost, when in fact energy and raw materials in the last 12 years, like everything else, shot up so high, Health Care had to go up.
If the Fed sets rates at 3% and get out of the way of their Macro and Global Economis crap, we might begin to see, price a lower price stabilization in our economy. This would put more liquidity in Ameriecans pockets and give Govt's across this nation a little more breathing room, in their budgets.
Banks would eventually compete for our dollars, which would be good news for millions of Baby-Boomers, who are ready to retire, looking for a safe place, to earn a decent yield, from their life savings, stimulating the economy better than the Fed Govt', creating jobs, instead of competing for them.
Home prices would stabilize in saturated markets, but in a supply and demand economy, it is healthy. Bernanke is price fixing our economy with his policy.
Sincerely Mr. Inflation

Mr Inflation,

LOL first of all.

You're right, but do you believe that Bernanke and Co are actually working towards "fixing" the situation or accidentally letting it get out of control?

If you ask me, I would be totally ok with them running up inflation if they needed to to wipe some of this garbage out and restore things to normal. Unfortunately, they have monkeyed with the sanctity of markets for too long for any traditional stunt to accomplish this. Who knows how this market will react? We don't because it's manipulated beyond recognition.

It gets worse before it gets better. Banks don't have to compete for our dollars anymore because we don't have any and the Fed has made it clear that they will keep them on life support for as long as possible.

It is the politically sensible thing for the Fed to do as well - if the banks can keep plugging the cheap money into Treasurys, Congress is happy and stays off their back. If not, guess who gets the blame?

Just my $0.000002 FWIW.


Tom said...

Please read:

Also, rather than mocking the notion that easy monetary policy caused the housing bubble, why not speak to evidence supporting your view. The influx of foreign capital would have driven speculation regardless of monetary policy, and adjusting the target interest rate in response to the bubble alone would have meant dismissing the more general economic atmosphere of the time. If you so strongly disagree with the past policy, first consider if your retrospective opinion would have worked better for the economy as a whole, and second, consider that it is retrospective. Hindsight is 20:20.

Flow5 said...

MONETARISM HAS NEVER BEEN TRIED: To counter what Greenspan described as “irrational exuberance” (at the height of the stock market bubble), Greenspan initiated a "tight" monetary policy (for 31 out of 34 months). A “tight” money policy is one where the rate-of-change in monetary flows (our means-of-payment money times its rate of turnover) is no greater than 2-3% above the rate-of-change in the real output of goods & services.

Greenspan then wildly reversed his “tight” money policy (at that point Greenspan was well behind the employment curve), and reverted to a very "easy" monetary policy -- for 41 consecutive months (despite 17 raises in the FFR-every single rate increase was “behind the curve”).

Then, as soon as Bernanke was appointed to the Chairman of the Federal Reserve, he initiated a "tight" money policy, for 29 consecutive months (out of a possible 29, or at first, sufficient to wring inflation out of the economy, but persisting until the economy collapsed). And for the last 19 successive months (since Aug 2008), the FED has been on a monetary binge (ending at April’s month-end).

Did you catch it??? Nobody got it. Greenspan didn't start "easing" on January 3, 2000, when the FFR was first lowered by 1/2, to 6%. Greenspan didn't change from a "tight" monetary policy, to an "easier" monetary policy, until after 11 reductions in the FFR, ending just before the reduction on November 6, 2002 @ 1 & 1/4%.

I.e., Greenspan was responsible for both high employment (June 2003, @ 6.3%), and high inflation. The evidence of Greenspan’s inflation (rampant real-estate speculation, followed by widespread commodity speculation – peaking in July 2008), cannot be conclusively deduced from the monthly changes in the price indices. And because of monetary lags, Greenspan’s legacy extends into 2010, with the creation of even higher unemployment (10.0%).

Part of the problem is the FED’s dual mandate; as the last reduction in the FFR occurred in the same month as the peak rate in unemployment (June 25, 2003). The FED can only hope to achieve stable rates of inflation. It’s their employment mandate that is unachievable.

What? How many T-Bills does the “trading desk” have to buy before it is able to reduce the unemployment rate by 1%? Of course, this is utter naiveté.


Unfortunately the Federal Reserve doesn’t gauge the volume and timing of its open market operations in terms of the amount and desired rate of increase of member commercial banks COSTLESS legal reserves, but rather in terms of the levels of the federal funds rates (the interest rates banks charge other banks on excess balances with the Federal Reserve).

By using the wrong criteria (interest rates, rather than member bank reserves) in formulating and executing monetary policy, the Federal Reserve became the bubble’s engine.

Flow5 said...

Contrary to economic theory, monetary lags are not "long & variable". The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are fixed in length. However the lag for nominal gdp varies widely).

Assuming no quick countervailing stimulus:

jan..... 0.54.... 0.25 top
feb..... 0.50.... 0.10
mar..... 0.54.... 0.08
apr..... 0.46.... 0.09 top
may..... 0.41.... 0.01 stocks fall

Should see shortly. Stock market makes a double top in Jan & Apr. Then real-output falls from (9) to (1) from Apr to May. Recent history indicates that this will be a marked, short, one month drop, in rate-of-change for real-output (-8). So stocks follow the economy down.

The rate-of-change in inflation should top in Mar. (e.g., CRB index). Later on this year, the inflation rate drops sharply --after Sept month-end.

Anonymous said...

What I like most is that they are starting to turn on one another - I find that like a real hoot. I want to see a "Mortal Kombat / Special Fed Edition" where each Kombatant has the likeness of a Fedhead. Greenspan could be like an old Yoda-esque jack off wearing a coolie hat. Lurking game creator, please give Yellen gigantic hooters.


Anonymous said...

on second thought, it would be more of a Slap Fight Milchama...

ooohhh you brute! oooohh take that!

I don't know of too many people who would be willing to buy that - maybe a few Jewish kids. It really surprises me that Greenspan continues to show himself. He needs to take some pointers from Christopher Cox.


Anonymous said...

I get a quarterly newsletter from CSC called "The Letter of Credit" -nifty, huh? This report documents that today, wealthy "homeowners" (yeah right) are defaulting on their mortgages at a faster pace than other segments of the population. Shocking, huh? One in seven with mortgages greater than one million are now defaulting compared with one in twelve "homeowners" with a mortgage less than one million. Recovery, my Snuggie clad ass. Fed has blown its load and isn't going to be able to do anything about it (except maybe make it worse). Anyone who went all in on that OMGObama bucks tax credit is going to be sucking wind within a year or so.

Anonymous said...

"But why won’t Ben Bernanke drop money from helicopters? Because he’s got a rope around his neck…and it’s getting tighter. As long the US can finance its deficits at low interest rates, he can’t move. It’s uncomfortable, but it’s a damned sight better than hanging. More on this as we figure it out."

How's that "short the dollar" strategy working out?

Who knows where the hell this is leading. I'm going to do a study in my spare time to see what the history of Snuggie prices have been.