On Apr 17, 2007, at 10:30 AM, Carl Remick wrote:
> Curious how Bob Kuttner knows more than I do, or indeed than Alan
> Greenspan does, about why Alan Greenspan believed (correctly) in
> the 1990s that he could keep interest rates low without generating
> higher inflation. Greenspan says that he kept interest rates low
> because (a) the deficit was smaller, (b) because higher investment
> made possible by lower deficits was increasing the rate of growth
> of potential GDP, and (c) because the computer revolution provided
> a further big boost to the growth of potential GDP. I think
> Greenspan's right about the (multiple) reasons he bet that he could
> keep interest rates low without triggering higher inflation.
> Kuttner thinks different.
This is hearsay, but very well-sourced hearsay: According to a JP Morgan economist, who reportedly got it straight from a Federal Advisory Council <http://www.federalreserve.gov/generalinfo/adviscoun/ fac.htm> meeting with Greenspan, AG was worried about deflation in the mid-1990s, and resisted calls from the bond ghouls and his Fed colleagues to tighten. Additional details: Greenspan was on the JPM board before joining the Fed, and JPM used to be referred to as "the second Fed," because of its prestige and closeness to power.
Doug