Greenspan: Inflation – the real threat to recovery

June 30, 2009 at 1:10 pm  ·  Category: Federal Reserve, Inflation

But I see inflation as the greater future challenge.  If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012; earlier if markets anticipate a prolonged period of elevated money supply.  Annual price inflation in the US is significantly correlated (with a 3½-year lag) with annual changes in money supply per unit of capacity.

Inflation is a special concern over the next decade given the pending avalanche of government debt about to be unloaded on world financial markets.  The need to finance very large fiscal deficits during the coming years could lead to political pressure on central banks to print money to buy much of the newly issued debt.

– Alan Greenspan, “Inflation – the real threat to recovery”, The Financial Times, June 25

The more likely explanation, however, is that Greenspan sold out.  He sold out his convictions, his beliefs, his roots, for position, power and prestige.  By flooding the economy with money, Greenspan ushered in a monumental boom that had many lauding him as a genius and a savior.  Greenspan was God.  He was the Maestro.  Universally admired and loved, credited with creating a golden age of economics, it must have been intoxicating and Greenspan was likely seduced by the adulation.

But now, the roosters are coming home to roost.  They always do.

– Greg Feirman, “Second Guessing The Maestro: Greenspan’s Reputation Under Fire”, Top Gun FP, April 8, 2008

What to make of Greenspan?  The guy is probably the one person in the world most responsible for the current mess.  As Fed Chairman from 1987-2006 he oversaw the health of the dollar, the world’s reserve currency, during a period of the most extravagant excess and decadence.

But he’s a smart guy and he understands what’s going on as evidenced by his recent FT op-ed.

Why didn’t he say more about this as Fed Chairman?  Who is Alan Greenspan?

Also see:

“The Fallacy In Greenspan’s Self Defense”, Top Gun FP, March 12 2009

“Two Decades Of Easy Money”, Top Gun FP, April 30, 2008

“Second Guessing The Maestro: Greenspan’s Reputation Under Fire”, Top Gun FP, April 8, 2008

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