Two egregious pieces of self-justifying bluster in the past week, both (as it happens) in the Murdoch media. First, Alan "the bubblemeister" Greenspan took to the op ed pages of the Wall Street Journal (subscription required to see the website), to pen yet another defence of his record as Fed Chairman, and to disavow all blame for the current credit crunch. Then Anatole Kaletsky used his column in the Times to defend himself against accusations that his analysis of said crunch is contradictory, in a remarkable piece that wound up advocating something that is logically impossible.
Greenspan's article was notable for his admission, for the first time as far as I can recall, that the extended period of low inflation enjoyed by the US and the rest of the world in the 1990s was mainly due to the surge in cheap imports from China, rather than his own mastery of economic lever-pulling. Maybe if he'd figured this out at the time, he would have realised that it was neither necessary nor desirable in the circumstances to keep interest rates artificially low, which only had the effect of causing the whole US economy to leverage itself to the hilt, setting the stage for the current problems.
On more familiar ground, Greenspan again says that there was nothing he or the Fed could have done to head off the crash, since markets always put an end to excesses at a time of their own choosing. It may be true that you can't exactly predict when a bubble is going to burst, but if you've fostered an economy built on the ready availability of cheap credit, you don't need to be a genius to realise that the likeliest time for it to happen is when you start raising interest rates. That's why you shouldn't let the bubble get too big in the first place. Greenspan is the Conrad Black of monetary policy: everyone else thinks he dunnit, but he is righteously convinced of his own innocence.
As for Kaletsky, hs thinks it is wrong for the UK and Europe to blame the US for the economic problems they now face, since they have housing market excesses of their own making. He may well be right about this (at least in the UK and Spain), though I don't recall him ever saying anything about it until the credit crisis hit. In fact, as I've said before, he was the leading advocate of the cheap money policies that got us into this mess, and the solution he is now advocating is....cutting interest rates.
Kaletsky thinks the US has got it right, allowing the dollar to fall, and the UK and Europe have got it wrong, with their currencies remaining too strong. This view is asinine. The big imbalances are between the US and China/India, but because of the intransigence of the Chinese, the US dollar is hardly falling at all against the Yuan. It's falling against the pound and the euro all right, which will no doubt give the US some relief. However, there is no policy known to man -- not even to clever people like Kaletsky and Greenspan -- that can result in the US dollar, sterling and euro all depreciating at the same time, unless and until the Chinese decide to float the Yuan. Interest rate cuts by the BoE and ECB will only slow the necessary correction in the US dollar -- and heighten the already-significant risk that inflation will reach nasty levels again. We can't blame Kaletsky for getting us into this mess -- Greenspan did that -- but it would be nice if he could at least think straight about it.
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