This important article from the Economist today on Greenspan and Bubbles, a source of articles on our situation that I find incredibly spot-on. I highly recommend reading this article in its entirety.
On Mr Greenspan's watch, America has also experienced the biggest stockmarket and housing bubbles in history. Presiding over one bubble could be seen as bad luck; presiding over two smacks of carelessness.
The Greenspan era will not end on January 31st. Instead, his legacy will linger in the shape of the biggest economic imbalances in American history: a negative household saving rate and a record current-account deficit (see chart 1). Until these imbalances unwind—a process that could prove painful—it is too soon to applaud Mr Greenspan's record.
The Economist's long-running quarrel with Mr Greenspan is that he chose not to restrain the stockmarket bubble in the late 1990s or to curb today's housing bubble. He has declared himself vindicated in not pricking the equity bubble with higher interest rates, but instead to let it burst and then cut rates sharply to “mop up” the damage.
Asset-price inflation can be as harmful as conventional inflation. A sudden collapse in share or house prices can trigger a deep downturn.
When the party ends, Mr Greenspan will not be there to clean up the mess. But end it surely will.
January 13, 2006
Economist on Greenspan: "His legacy will linger in the shape of the biggest economic imbalances in American history"
Posted by blogger at 1/13/2006