How Two Decades of Greenspan’s Policies Have Undermined the Global Economy (2005)

The Film Archives

Published on Jul 1, 2017

On June 2, 1987, President Ronald Reagan nominated Greenspan as a successor to Paul Volcker as chairman of the Board of Governors of the Federal Reserve, and the Senate confirmed him on August 11, 1987. Investor, author and commentator Jim Rogers has said that Greenspan lobbied to get this chairmanship.

Two months after his confirmation Greenspan said immediately following the 1987 stock market crash that the Fed “affirmed today its readiness to serve as a source of liquidity to support the economic and financial system”[28][29][30] George H. W. Bush blamed Fed policy for not winning a second term. Democratic president Bill Clinton reappointed Greenspan, and consulted him on economic matters. Greenspan lent support to Clinton’s 1993 deficit reduction program.[31] Greenspan was a fundamentally monetarist in orientation on the economy, and his monetary policy decisions largely followed standard Taylor rule prescriptions (see Taylor 1993 and 1999). Greenspan also played a key role in organizing the U.S. bailout of Mexico during the 1994-95 Mexican peso crisis.[32]

In 2000, Greenspan raised interest rates several times; these actions were believed by many to have caused the bursting of the dot-com bubble. According to Nobel laureate Paul Krugman, however, “he didn’t raise interest rates to curb the market’s enthusiasm; he didn’t even seek to impose margin requirements on stock market investors. Instead, he waited until the bubble burst, as it did in 2000, then tried to clean up the mess afterward”.[33] E. Ray Canterbery agrees with Krugman’s criticism.[34]

In January 2001, Greenspan, in support of President Bush’s proposed tax decrease, stated that the federal surplus could accommodate a significant tax cut while paying down the national debt.[35]

In autumn 2001, as a decisive reaction to the September 11 attacks and various corporate scandals which undermined the economy, the Greenspan-led Federal Reserve initiated a series of interest cuts that brought down the Federal Funds rate to 1% in 2004. While presenting the Federal Reserve’s Monetary Policy Report in July 2002, he said that “It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously”. and suggested that financial markets need to be regulated.[36] His critics, led by Steve Forbes, attributed the rapid rise in commodity prices and gold to Greenspan’s loose monetary policy, which Forbes believed had caused excessive asset inflation and a weak dollar. By late 2004, the price of gold was higher than its 12-year moving average.

Greenspan advised senior members of the George W. Bush administration to depose Saddam Hussein for the sake of the oil markets.[37] He believed that even a moderate disruption to the flow of oil could translate into high oil prices[38] which could lead to “chaos” in the global economy and bring the industrial world “to its knees”.[39] He feared that Saddam could seize control of the Straits of Hormuz and restrict the transport of oil through them. In a 2007 interview, he said, “people do not realize in this country, for example, how tenuous our ties to international energy are. That is, we on a daily basis require continuous flow. If that flow is shut off, it causes catastrophic effects in the industrial world. And it’s that which made him [Saddam] far more important to get out than bin Laden.”[40]

On May 18, 2004, Greenspan was nominated by President George W. Bush to serve for an unprecedented fifth term as chairman of the Federal Reserve. He was previously appointed to the post by Presidents Reagan, George H. W. Bush, and Clinton.

In a May 2005 speech, Greenspan stated: “Two years ago at this conference I argued that the growing array of derivatives and the related application of more-sophisticated methods for measuring and managing risks had been key factors underlying the remarkable resilience of the banking system, which had recently shrugged off severe shocks to the economy and the financial system. At the same time, I indicated some concerns about the risks associated with derivatives, including the risks posed by concentration in certain derivatives markets, notably the over-the-counter (OTC) markets for U.S. dollar interest rate options.”[41]

Greenspan opposed tariffs against People’s Republic of China for its refusal to let the yuan rise,[42] suggesting instead that any American workers displaced by Chinese trade could be compensated through unemployment insurance and retraining programs.[43]

Greenspan’s term as a member of the Board ended on January 31, 2006, and Ben Bernanke was confirmed as his successor.

As chairman of the board, Greenspan did not give any broadcast interviews from 1987 through 2005.…


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s