Exiting 'The Church Of Greenspan'

The newswires are looking at the Greenspan/Bernanke hand-off; a reader asks, "Topic, Countdown to Bernanke. Greenspan retires on the 31st. Time to put in your final predictions." Another adds, "How will Bernanke be able to reduce interest rates to a level which reflates the bubble without crashing the bond market, especially given recent reports on strong labor market and durable goods orders?" "Mr. Greenspan oversaw a massive Internet stock bubble in the late 1990s. And what many see today as a housing bubble could leave headaches for his successor at the Fed. Was he too slow to react to a stock market bubble he saw coming for years? Did he need to say more about a bubbly housing market and skyrocketing debt?" "Mr. Greenspan could have educated the public more about unsustainable trends in the stock market and home lending, Lee Price said. 'If he had been more courageous in talking about that imbalance in the stock market, it would've had a salutary effect on the real economy as well,' he said." "For the past few years, Greenspan himself has emerged as little more than a cheerleader for the U.S. economy, putting a happy face on potential economic troubles with assurances that the underlying strength of the economy is sound and brushing off concerns about potential inflationary pressures. Gone are the pithy economic bon mots about 'irrational exuberance,' replaced by descriptions of the housing market as having 'froth' in some markets." "On Greenspan's watch, the United States experienced only two relatively mild recessions, even though it was hit by a number of shocks, such as the 1987 stock market crash, two wars in the Persian Gulf, the 1997 Asian financial crisis, the bursting of the stock bubble in 2000 and terrorist attacks in 2001. Bernanke's job will be to keep the good times rolling." "Ben Bernanke may never match Alan Greenspan's influence over the economy. 'The Fed now has limited leverage over the housing market,' said Peter Morici, an economics professor at the University of Maryland. 'It has been unable to tap the brakes on the housing market,' even though many economists fear housing prices have risen to dangerous heights in some markets. 'We're getting a price bubble on houses,' and the Fed has been unable to prick it, he said." "Worship at the Church of Greenspan had reached such a feverish pitch that when Senate Minority Leader Harry Reid called the Federal Reserve chairman 'one of the biggest political hacks' in Washington, even fellow Democrats shushed him. It now appears that Reid has lots of company. Top economic minds are saying that Greenspan was not a great central banker, or even a good one." "Central bankers are supposed to abhor market bubbles, but Greenspan blew air into two of them, a stock and a housing bubble, by keeping interest rates low. American consumers responded by borrowing money against their paper profits. They spent the dough, which propped up the economy. Now consumers are burdened with debt." "Part of America's economic prosperity, The Economist notes, 'is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future.' As the Austrian economist Ludwig von Mises once said: 'It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.'" "Greenspan leaves behind an America that is the world's leading debtor nation. The United States must now borrow $2 billion from foreigners every working day to service its debt. Its personal-savings rate is negative. So expect a lot of economists to be sitting on their hands as Greenspan departs the Fed at the end of the month. Even his Enron Prize for Distinguished Service, which Greenspan accepted a few days after the energy company admitted to filing falsified earning reports, doesn't impress them."