More proof that acolytes of Ayn Rand should *not* be put into positions of responsibility. - Brian
On Fri, 30 Aug 2002, Doug Henwood wrote:
> [why does this guy still have a good reputation?]
>
> Greenspan: Not Much Fed Can Do on Bubbles
> Fri Aug 30,11:06 AM ET
>
> By Glenn Somerville
>
> JACKSON HOLE, Wyo. (Reuters) - Federal Reserve ( news - web sites)
> Chairman Alan Greenspan ( news - web sites) on Friday defended the
> Fed's lack of action during the ill-fated 1990s stock market boom,
> saying there was little the central bank could do to identify and
> fight emerging asset bubbles.
>
> Greenspan said there was not a reliable enough guide to allow a
> central bank to safely and slowly deflate a speculative surge in
> prices. The bursting of the 1990s stock bubble erased trillions of
> dollars in wealth, prompting criticism that the powerful Fed chief
> should have done more to prevent it.
>
> "It is by no means evident to us that we currently have -- or will be
> able to find -- a measure of equity premiums or related indicators
> that convincingly presage an emerging bubble," the Fed chief said in
> prepared remarks for delivery to a symposium sponsored by the Kansas
> City Federal Reserve.
>
> "Short of such a measure, I find it difficult to conceive of an
> adequate degree of central bank certainty to justify the scale of
> preemptive tightening that would likely be necessary to neutralize a
> bubble," he said.
>
> The Fed chief in December 1996 famously wondered aloud if the stock
> market had a case of "irrational exuberance" but he later abandoned
> efforts to talk down the markets and they bounded almost unstoppably
> higher until spring 2000.
>
> Greenspan has indicated in the past that he did not believe it was
> the Fed's job to second-guess the judgements of private investors
> about the appropriate value of stocks.
>
> Some critics have said he should have used his always powerful
> rhetoric, interest rate hikes or even tighter margin requirements for
> buying stocks to help let air out of the bubble sooner and less
> painfully.
>
> Greenspan, however, contended in his speech that those methods would
> not have worked and the magnitude of rate increases needed for a
> less-damaging deflation of the bubble would have risked a
> Fed-triggered recession.
>
> "It was far from obvious that bubbles, even if identified early,
> could be preempted short of the central bank inducing a substantial
> contraction in economic activity -- the very outcome we would be
> seeking to avoid," he said.
>
> The speech, which offered no clues to the Fed's near-term outlook for
> policy, was overshadowed in markets by a stronger-than-expected
> reading on a Chicago-area gauge of manufacturing activity.
>
>
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"And Mr. Block thinks he may / Be President some day." - Joe Hill, "Mr. Block"