>
> 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.
> >
> >
>
> --
> ---
>
> "And Mr. Block thinks he may / Be President some day." - Joe Hill, "Mr.
> Block"
>
>