Greenspan: We're Destined For Inflation-- and fed cant stop it.

Greenspan wrote this article in 2009. His premise: the fed didn’t keep rates low, rather, it was an increase in world savings-- and thus an increase in the supply of loanable funds-- that kept rates low. He says this, as he tried to increase rates by sucking money out of the system, but found that it was not a net subtraction because of the increase in foreign funds available to be loaned.

So, my take: if the fed has lost control of rates, because the world has become a large player in credit markets, then how can the fed raise rates in the future?

it seems, if short-term and long-term rates are still decoupled, then the Fed will have trouble raising rates without globally unified monetary tightening.


Man, his writing is just like his Fed speeches. It’s a chore to get through this… Anyway, the summary of this article is “it’s not my fault”. That is, Greenspan argues that Fed Funds rates do not have a direct or immediate effect on housing capitalization. Thus, the housing bubble was not due to Fed action. I agree with this - at least partially.

If Greenspan had understood the magnitude of the coming crash, he might have been motivated to do more to decrease liquidity. However, I don’t know how much we can blame him for not knowing the future, even if we assume that it was part of his job.

This man has no credibility. Hard to believe he was hyped so much by the media as a God. Read “Greenspan’s Bubbles” to get an unbiased view on his tenure at the Fed. The man didn’t come to the knees of his predecessor (Volcker), both literally and figuratively.

On the other hand, Bernanke has the opposite treatment in the media. But, when all is said and done, history (decades from now) will remember him as one of the best chairman’s the Federal Reserve has ever had.

That’s the issue with these old school inflation hawks, they’re always fighting yesterdays war. Everything has to do with OMG INFLATION WTF? In a situation where we face deleveraging, contracting money supply, and recession, the worry is always about INFLATION(OMG).

A big part of the problem is that I feel financiers only look at the capital market effects of these policies while ignoring the broader economy (Fed is keeping my rates low so no money on bonds crying), and the absolute inability to grasp economic theory among them is painful to endure. The next person who says “easy money” needs to be punched in the face.


“We’re destined for inflation…” That’s like the farmer’s almanac. Eventually he’ll be right.

“We’re destined for a pullback in the markets…” -duh

I like Bernanke. Never liked Greenspan. It’s like old star athletes that try to come back and re-capture glory, versus equivalent past stars who just live the rest of their lives respectfully in quiet.

greenspan may suck, but what do you guys think?

If these things are decoupled, and inflation does come, wont we be in trouble because we can’t raise rates?

or will bernake just have to pull out more money than he would have prior to the increase in world savings?