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on 12 September 2008
In this fascinating book, financial journalist William Fleckenstein studies the record of Alan Greenspan, chairman of the Federal Reserve from 1987 to 2006.

Between 1937 and 1987 there were no bubbles, but Greenspan helped to create two bubbles in ten years - in stocks and then in real estate - by holding interest rates too low, punishing savers. He helped to make the American people worse off by redistributing wealth to the rich, the bubbles' boosters and sponsors.

Greenspan viewed new technology expenses as assets. So he thought that productivity and profits were higher than they really were, that inflation was overstated and that stocks were understated. In 1998 firms spent $95 billion on computers. After Greenspan's `hedonic adjustment', this came out as $352 billion, adding 2% to US GDP.

Governments want to understate inflation and overstate growth, productivity and incomes. So now, most price rises seem to be way above the rate of inflation.

Greenspan's rate cut of 15 October 1998 triggered the stock market bubble. By 1999 the stock market was valued at 180% of US GDP. (In the last bubble, in 1929, it was 85% of GDP.) In 2000-01 this bubble burst - the new technology miracle proved to be a mirage. In 1992-99 there was zero productivity growth in 99% of the US economy, and growth only in 1%, computer hardware.

In 2001-03, housing `saved' the US economy from the aftershock of the stock bubble. De-regulation led to lower lending standards with more `creative' financial instruments, like the $500 trillion worth of derivatives, which Warren Buffett described as `financial instruments of mass destruction'.

So from 2003 to 2007 there was a real estate bubble, based on huge debts. Mortgage-equity withdrawals created half US GDP growth between 2001 and 2007. By 2006, household debt was 97% of GDP: mortgage debt was $13.3 trillion. Total US debt in 2007 was 325% of GDP.

This ocean of debts rested on a falling real estate market, a sinking economy and a weak currency. Where could the next economic rebound come from? Capitalism has destroyed production and destroyed the housing market: it is running out of options.
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on 6 October 2008
I would recommend this book to readers of Greenspan's Age of Turbulence as a relevant counterargument. However, I would do so with some significant reservations. The key criticism leveled at Greenspan is that his monetary policy encouraged rather than hindered the Dot com and property bubbles. Fleckenstein's contention however is based on an erroneous assumption. The author implies that it was Fed's job to constrain ASSET price inflation. In fact the orthodox economic view, throughout this period, was that central banks should concern themselves entirely with achieving low and stable CONSUMER price inflation. Perhaps the Fed chairman did allow himself, at times, to become distracted by the performance of the US stock market but ultimately it wasn't in his job spec. to stop the speculative excesses of joe public. Trying to lay the blame solely at his door is ill conceived.

This account, written in the context of the current financial crisis, is a knee jerk and reactionary response. Nonetheless, it does contain the grain of truth that, going forward, economic policymakers will need to start focusing more on different types of price inflation to ensure economic stability over the longer term. No doubt, a much more balanced account of the man who ran US monetary policy for so long will be written in the years to come. In the meantime this effort shouldn't be ignored.
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This book states the argument of those who oppose Alan Greenspan, the former chair of the U.S. Federal Reserve. William A. Fleckenstein and Frederick Sheehan, who sometimes seem to go a bit over the top in the intensity of their attacks, write that Greenspan, despite his reputation, was no "maestro." Instead, they report he was a poor manager with a habit of either deception or self-delusion. The authors support their argument by drawing heavily on extensive quotations from Greenspan's testimony before Congress and on minutes of the Federal Reserve Open Market Committee meetings. Although getAbstract might wish for less fervor in this presentation, it forwards this book to policy makers, financial services executives and others who wish to understand the downside of Greenspan's policies and how he may have contributed to the U.S. economy's current dilemma.
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on 2 March 2008
I always thought Greenspan was an idiot but had no idea how big an idiot he was/is. EZ-AL was nothing more then a snake oil salesman that promised great things and delivered misery. The collapse of the U.S. financial system can be directly tied to Greenspan through his not having a clue as to what he was doing while the head of the Federal Reserve. Perhaps now the U.S. is entering into the largest financial disaster since the Great Depression, citizens will come to realize that Alan Greenspan was a major contributor through his mismanagement of the supply/cost of money. In Congressional testimony he admitted it wasn't "possible to manage something" you couldn't define. This admission from the Chairman of the Federal Reserve Bank of the United States!!!!!!
In the mean time, we pay while Alan played.
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on 2 April 2008
Public men in the public eye and with very public actions tend to have eulogists and detractors.
Alan Greenspan was Chairman of the FED for 19 years and three Presidents. During his tenure as Chairman, globalisation came of age, China erupted in the world scene, geopolitical trends shifted with the fall of the Wall, the Euro and September 11th.
The only strange thing in this long period is that no catastrophic event occurred, although a lot of recessions and financial crisis took place throughout the world.
There was never a unanimity about Greenspan's actions and decisions (although they were not only his) and those who read Joseph Stiglitz's «The Roaring Nineties» noticed that he took more then a few pot-shots at Alan Greenspan, to give an example.
When an economic downturn occurs, like the one triggered by the sub-prime crisis, those who dislike the market economics blame it on the market and its rules and of course on its Heralds and Icons; But, making an idiot and a blunderer of the man who oversaw one of the longest and most ebullient periods of growth in the United Sates and the world at large is not an useful contribution to the understanding of what is at stake now.
"Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve" by William Fleckenstein and Fred Sheehan will not go down in any serious analysis of the period. The Age of Turbulence by Alan Greenspan will. Read it instead.
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