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http://www.nytimes.com/reuters/business/business-greenspan.html

Ad methinks he might be right on this one.
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Somehow that article doesn't look like the original text that I read recently. In the original, almost every paragraph was couched with "if this happens then that happens". Greenie didn't really make any predictions, just statements of obvious fact: if A then B. The newswriters seem to be taking all of the "if's" off of the sentences and running them as statements: we will get A then B.

Hedge
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Somehow that article doesn't look like the original text that I read recently. In the original, almost every paragraph was couched with "if this happens then that happens". Greenie didn't really make any predictions, just statements of obvious fact: if A then B. The newswriters seem to be taking all of the "if's" off of the sentences and running them as statements: we will get A then B.

It wouldn't be Greenie (or any other academic) without ifs, ands, and buts.
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It wouldn't be Greenie (or any other academic) without ifs, ands, and buts.

Well my point was that I just don't see what all the falderol is about. I didn't read his speech, I watched it on TV: probably Bloomberg. I didn't notice anything particularly interesting about the speech. He picked a number of subjects and said if this happens than that will follow. But, from where I was sitting, at least, he wasn't making any prognostications; just stating various almost random scenarios. I think he gets paid by the word. ;)

Hedge
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Well my point was that I just don't see what all the falderol is about.

He makes better press than Bernanke.

I didn't see anything, just what I read in the funny pages. But I do agree with the point, even with ifs ands and buts, that the factors that have kept inflation at bay, in the face of deficit spending and printing money (my explanation) can't continue.
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But I do agree with the point, even with ifs ands and buts, that the factors that have kept inflation at bay, in the face of deficit spending and printing money (my explanation) can't continue.

It's like trying to work out a 100 term polynomial in your head. I can't keep all the issues in focus long enough to work it all out. Edmunds says that over the course of our lives, the USD will fall in value, and I believe it. The issue is how fast, of course. If they could find a cost effective way to punish the subprime miscreants. If we get into a trade war with China; though I see that the price of pork is inflating as more Chinese can afford it. If we go to war with Iran; though it looks like the EU will be in front of this particular line. If Chavez figures some way to be more than a buzzing mosquito. If the Olduvai Theory is correct. If. If. If.

I dunno. The USD will almost certainly accelerate downward, but how much will that hurt core inflation? We don't really need much of the junk we get from China. Oil is an issue, of course. So is natural gas for our electric plants; which can also run on coal. I think we can feed ourselves if we give up on this corn-into-ethanol nonsense.

Sometimes I wonder if we are at the edge of a Perfect Storm. But, I agree with your premise; our Golden Age lifestyle can't go on indefinitely. Everyone, including the poor, is simply too rich in America.

Hedge
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1. Greenspan was interesting last night on 60 minutes. He was and is a Geek, which is exactly the kind of data-driven person you need. My interpretation of what he said:

2. He sees the biggest long-term danger as inflation;

3. He doesn't think the worst of the housing fall as over, for a while, but doesn't see the sub-prime problem as terrible;

4. He sees the economy as strong. There may be a recession, but he doesn't think that necessarily is true.

5. Several has said that he should "shut up" and not discuss as he did before. He did that for a year and he's not going to stop commenting.

6. Interesting interpretation of his relationship with Past Presidents. Worst was first Bush. Best was Clinton ("very bright") and he agreed that they probably were "The Odd Couple."

7. He's in love with his wife and Andrea loves him. Neat story.

Hockeypop
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He was and is a Geek, which is exactly the kind of data-driven person you need.

Speaking as a geek (a.k.a. scholar), I think Greenspan had the problem many scholars who get turned into celebrities have. A scholar should like to be proven wrong, or at least to have to defend a position against strong counter arguments and evidence. In a celebrity context, this tends not to happen. Along with this, as Fed chairman, he was given too much deference and not forced to go through the kind of strong counter arguments that his Fed colleagues should have made (they sometimes disagreed, but not with the force they should have). I think he made some bad decisions that aren't just hindsight—there were reasons to do it differently at the time. Specifically, he should have burst the NASDAQ bubble back around 96-97, whhen he talked about irrational exhuberance, but did nothing about it. And he should have dropped interet rates much more slowly after the bubble burst and 9/11. Encouraging borrowing to spend while talking about the need to encourage savings makes no sense. He was also enamored with hedging strategies and derivatives and supposedly spreading the risk around, but he needed to be challenged to the problems with this in the real world, which is not like the mathematical economics models he likes so much.

nteresting interpretation of his relationship with Past Presidents. Worst was first Bush. Best was Clinton ("very bright") and he agreed that they probably were "The Odd Couple."

I really don't think this is that odd. For one thing Clinton is smart, and he was certainly the only president Greenspan worked with who would have made a good doctoral student if Greenspan had had him while still a professor. It is a little surprising that he had such a dislike for Pappy Bush, who was the other wonk. Also, if you look at fiscal policy, Clinton pushed for a balanced budget and free trade.
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It is a little surprising that he had such a dislike for Pappy Bush, who was the other wonk.

Based on another article I read (that I can't find now) about his book, the reason was that Bush Sr tried to influence Fed policy to help himself politically - i.e. apparently he blamed the Fed (in part) for his 92 loss for not lowering rates enough to get the economy turned around quick enough. While Clinton was much more hands-off and respected the independence of the Fed.

I do not say this to make any political comments on the two presidents in any way, but from the perspective of a Fed Chair, I understand why that would breed some dislike.
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I saw Greenie on "Book Notes" where he gave an extended interview (a couple of hours). In it he stated that Bernanke will have a much harder job than he did due to the real risk of high inflation. It didn't sound to me like he was pulling any punches--he sees inflation as a real problem in the future.

2old
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It didn't sound to me like he was pulling any punches--he sees inflation as a real problem in the future.

One should be wary of one's (mis)understanding of a Greenspan interview. Discounting the "if"s and "depending on"s may make one come to a conclusion that wasn't stated. Didn't he simply say that "the threat of inflation was a challenge that he didn't have to face during his tenure" or something similar to that?

Hedge
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n it he stated that Bernanke will have a much harder job than he did due to the real risk of high inflation. It didn't sound to me like he was pulling any punches--he sees inflation as a real problem in the future.

I think Greenie is right about inflation/stagnation hitting the fan. But Greenie helped set up the problem by ignoring that you can't have a wealthy economy with most people at best treading water by pumping up supposed net worth. And he is enamored by derivatives and such that are just pretend money.
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According to the WSJ, this is what he says in his book:

Left alone, he said, the Fed's policy-making body, the Federal Open Market Committee, can keep inflation between 1% and 2%, but that could require forcing interest rates to double-digits, a level "not seen since the days of Paul Volcker," his predecessor as Fed chairman. "I fear that my successors on the FOMC, as they strive to maintain price stability in the coming quarter century, will run into populist resistance from Congress, if not from the White House," he writes.

If the Fed succumbs to that pressure, inflation could rise from a little over 2% at present to an average of 4% to 5% by the year 2030, he writes. Ten-year Treasury yields, now below 5%, will rise to "at least 8%" with the potential to go "significantly higher for brief periods." This, he says, will lead to stagnant returns on stocks and bonds and much smaller gains in housing prices.


http://online.wsj.com/article/SB118978549183327730.html?mod=mktw)

He expounded on the above during the interview when he stated that Bernanke would have a much harder job than he did.

Seeing how the Fed caved during the recent credit crunch, do you really think they're going to let interest rates go to double-digits again, or will they be happier not to butt heads with Congress and the White House and just let inflation rise?

For the record, I believe I saw the interview on C-Span's "Book TV", and as for my misunderstanding of it, that's quite possible since I had just flown NY to Phoenix, and I was watching the show at 4 AM Phoenix time, 7 AM New York time, with no coffee. ;-)

2old
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He expounded on the above during the interview when he stated that Bernanke would have a much harder job than he did.

I agree with his premise about future inflation and the inability to keep it in check without severe consequences for economic growth (which will have enough problems with demographics, energy, and global warming).

Where I disagree is his claim that he had it easy. He chose to have it easy. He could have popped irrational exurberance, and the claim that I didn't know doesn't pass muster, since he's the one who talked about irrational exuberanc. And cutting rates to 1% to prevent the US consumption is us society from going the way of deflationary Japan without waiting for the evidence was bad, bad economics. And eventually if you print money, it will cause inflation. And shall we mention his support for budget busting tax cuts for the super rich, which he now denies he supported?
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"(if) Left alone..."

My "if", but it's clearly what the sentence means.

"I fear that my successors on the FOMC, as they strive to maintain price stability in the coming quarter century, will run into populist resistance from Congress, if not from the White House," he writes.

I don't see anything earth-shattering or particularly enlightening about this statement.

If the Fed succumbs to that pressure, inflation could rise from a little over 2% at present to an average of 4% to 5% by the year 2030, he writes. Ten-year Treasury yields, now below 5%, will rise to "at least 8%" with the potential to go "significantly higher for brief periods." This, he says, will lead to stagnant returns on stocks and bonds and much smaller gains in housing prices.

The same goes for this. OTOH, if he had inflation will rise to an average of 4% to 5% by 2030, then I'd be worried.

Will we see "stagnant returns on stocks and bonds"? Only if there is populist pressure ... and if the Fed succumbs to it. There are probably a number of other ifs that are required, as well.

Sorry, but I don't see any implied direction from the ex-Chairman's speech.

Hedge
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To say nothing of how he encouraged folks to get into ARMs--you don't have to convince me--I'm in the choir.

2old
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To say nothing of how he encouraged folks to get into ARMs--you don't have to convince me--I'm in the choir.

I'm not saying don't listen to him. I'm just saying it's often difficult to decide whether he's actually saying something or just putting in the usual Fed Speak/filler. Mostly it's filler.

As to ARMs: in 1988, we bought a house in El Segundo with an ARM entry rate of 9.25%. It's the only way we could have gotten into the house. A couple of years later, the So Cal market went through another of its bust cycles. We were able to keep the house, at one time paying $1,000/mo in principal due to the way the loan was structured. I'll also admit to paying a number of months with option 1: negative amortization. When we bought the house, I was counting on a bout of inflation to ease the payments; never happened. Still, we managed to keep the house. Many years later when things turned south for us (jobs, health) the house held up its end of the bargain and gave us back all those payments we sweated through. It could just as well have been a tragic ending. I'd rather be lucky than good. :)

Hedge
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As to ARMs: in 1988, we bought a house in El Segundo with an ARM entry rate of 9.25%. It's the only way we could have gotten into the house. A couple of years later, the So Cal market went through another of its bust cycles. We were able to keep the house, at one time paying $1,000/mo in principal due to the way the loan was structured. I'll also admit to paying a number of months with option 1: negative amortization. When we bought the house, I was counting on a bout of inflation to ease the payments; never happened. Still, we managed to keep the house. Many years later when things turned south for us (jobs, health) the house held up its end of the bargain and gave us back all those payments we sweated through. It could just as well have been a tragic ending. I'd rather be lucky than good. :)

Getting an ARM instead of a fixed mortgage when rates are at 9.25% is not the issue. Greenie was encourgaing ARMs when mortgage rates were low. ARMs, even one's without teaser rates, were almost guaranteed to go up and the assumption that people could use the low rate for a while then remortgage and the total would be to their benefit was nonsense, ignoring the clauses that prevented refinancing and paying points in a timely fashion.

I don't think Greenspan is inherently a greedy bad guy. I think he plays around with economic models, likes complex markets, is insufficiently concerned about dishonesty, and really needs to get out of his ivory tower and talk to real people.
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Many years later when things turned south for us (jobs, health) the house held up its end of the bargain and gave us back all those payments we sweated through.

I know quite a few folks who bought apartments or co-ops 25 or more years ago in Manhattan. They stretched to make the payments. Today, their places are worth millions. I know couples who have two bedroom apartments that could sell them in 24 hours for at least $4M. On my end of the stick, I've done badly with every house (primary or vacation)I've purchased over the years. The only exception is the house we live in now, which has doubled in value over the past three years. We don't plan to move again until it's time to move underground.
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