Former Fed Chief Greenspan Worried About Future of Monetary Policy

'Chairman Alan Greenspan said Wednesday that the Fed’s bond-buying program, which aimed to lower unemployment and spur stronger economic growth, fell short of its goals.

Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.

He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”

...

'Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.'

Former Fed Chief Greenspan Worried About Future of Monetary Policy - WSJ - WSJ


So, once again, the Fed's QE programs helped it's Wall Street buddies but does little for the rest of the country...no sh!t.

Also, if a former Fed chairperson is saying gold is a good investment, you can be fairly sure (imo) that he/she is not completely gaga about the economic future.

DA60 said:

'Chairman Alan Greenspan said Wednesday that the Fed’s bond-buying program, which aimed to lower unemployment and spur stronger economic growth, fell short of its goals.

Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.

He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”

...

'Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.'

Former Fed Chief Greenspan Worried About Future of Monetary Policy - WSJ - WSJ


So, once again, the Fed's QE programs helped it's Wall Street buddies but does little for the rest of the country...no sh!t.

Also, if a former Fed chairperson is saying gold is a good investment, you can be fairly sure (imo) that he/she is not completely gaga about the economic future.

Click to expand...

It certainly did something for the Wall Street people. But it also did a lot of others a favor in reducing the depth of the second trough of the 2001 bubble after 2007. We would have had a really bad time of it. The question has always been, whether we can escape a depression. And so far we have.

joG said:

The question has always been, whether we can escape a depression. And so far we have.

Click to expand...

......Or at least we have delayed it. Whether a delay is positive or negative is another subject for debate.

fmw said:

......Or at least we have delayed it. Whether a delay is positive or negative is another subject for debate.

Click to expand...

Just so!

joG said:

It certainly did something for the Wall Street people. But it also did a lot of others a favor in reducing the depth of the second trough of the 2001 bubble after 2007. We would have had a really bad time of it. The question has always been, whether we can escape a depression. And so far we have.

Click to expand...

A lot of people say that, but where is the proof?

Where is the unbiased, factual proof that the economy would not have recovered on it's own had QE never been implemented - just as it had during the 1920/21 Depression when the government lowered spending and taxes and the economy recovered in 3 1/2 years?

Plus, Greenspan admitted that QE didn't do much for the real economy. Then how could QE have stopped a depression if it did not 'do much for the real economy'?

And please remember, many of the economists that swear it stopped a depression are the exact same economists who completely missed the housing crash until it had already started - and it was obvious years before that it was coming (heck, even a nobody like me saw it coming, as did many others).

At the end of the day, there is no unbiased, factual proof that QE avoided a depression.
But since Keynesian economists have to justify all the spending, they come up with this 'it saved us from a depression' line...even though they surely know full well there is absolutely no way to factually prove it.

DA60 said:

A lot of people say that, but where is the proof?

Where is the unbiased, factual proof that the economy would not have recovered on it's own had QE never been implemented - just as it had during the 1920/21 Depression when the government lowered spending and taxes and the economy recovered in 3 1/2 years?

Plus, Greenspan admitted that QE didn't do much for the real economy. Then how could QE have stopped a depression if it did not 'do much for the real economy'?

And please remember, many of the economists that swear it stopped a depression are the exact same economists who completely missed the housing crash until it had already started - and it was obvious years before that it was coming (heck, even a nobody like me saw it coming, as did many others).

At the end of the day, there is no unbiased, factual proof that QE avoided a depression.
But since Keynesian economists have to justify all the spending, they come up with this 'it saved us from a depression' line...even though they surely know full well there is absolutely no way to factually prove it.

Click to expand...

I have never looked at the 1920 depression in detail, but did at the 1929 one and later ones in the US and Europe. What seemed clear was that in analyzing them it is important to look at the individual circumstances and the regulation in place at the time.
What is certainly true is that we still have very limited research on the first and second incidence impacts of QE and none for later incidence as we are still living in it. What is also quite certain, if not totally, is that the depression would have gone away without QE. But that is sort of like saying that the market fixes imbalances and you therefore need take no corrective measures. You see, this was Greenspan's approach to the bubble he described in the mid 1990s as irrational exuberance. And now we are living with the consequences of waiting for the market to do its tricks.

But think of the situation of a bank in the turmoil and thereafter. They had assets on their books whose prices were falling and thus destroying their Tier... capital. Banks must maintain certain ratios between Tier capital and assets. If their capital decreases, they must either get new capital like through issuance of stock. That was nearly impossible and if possible extremely expensive. They could reduce their assets like cancelling loans or reducing revolving credit and leasing structures to consumers et alias. Alternatively they can close the shop.

By propping up the prices of the assets on their balance sheets with QE the FED allowed them to continue to lend and thus for companies to sell and consumer to buy. There is no question in any specialists' minds, that this did happen. The question is to which extent. But it is pretty certain, that the negative impact of falling asset values would have, if it had gone unchecked, caused a depression.

DA60 said:

'Chairman Alan Greenspan said Wednesday that the Fed’s bond-buying program, which aimed to lower unemployment and spur stronger economic growth, fell short of its goals.

Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.

He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”

...

'Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.'

Former Fed Chief Greenspan Worried About Future of Monetary Policy - WSJ - WSJ


So, once again, the Fed's QE programs helped it's Wall Street buddies but does little for the rest of the country...no sh!t.

Also, if a former Fed chairperson is saying gold is a good investment, you can be fairly sure (imo) that he/she is not completely gaga about the economic future.

Click to expand...

Didn't that ol' geezer retire years ago? Since when do we listen to past Fed chiefs vs. the present one?

EnigmaO01 said:

Didn't that ol' geezer retire years ago? Since when do we listen to past Fed chiefs vs. the present one?

Click to expand...

He not only retired. He retired in politely concealed shame.

C

joG said:

I have never looked at the 1920 depression in detail, but did at the 1929 one and later ones in the US and Europe. What seemed clear was that in analyzing them it is important to look at the individual circumstances and the regulation in place at the time.
What is certainly true is that we still have very limited research on the first and second incidence impacts of QE and none for later incidence as we are still living in it. What is also quite certain, if not totally, is that the depression would have gone away without QE. But that is sort of like saying that the market fixes imbalances and you therefore need take no corrective measures. You see, this was Greenspan's approach to the bubble he described in the mid 1990s as irrational exuberance. And now we are living with the consequences of waiting for the market to do its tricks.

But think of the situation of a bank in the turmoil and thereafter. They had assets on their books whose prices were falling and thus destroying their Tier... capital. Banks must maintain certain ratios between Tier capital and assets. If their capital decreases, they must either get new capital like through issuance of stock. That was nearly impossible and if possible extremely expensive. They could reduce their assets like cancelling loans or reducing revolving credit and leasing structures to consumers et alias. Alternatively they can close the shop.

By propping up the prices of the assets on their balance sheets with QE the FED allowed them to continue to lend and thus for companies to sell and consumer to buy. There is no question in any specialists' minds, that this did happen. The question is to which extent. But it is pretty certain, that the negative impact of falling asset values would have, if it had gone unchecked, caused a depression.

Click to expand...

How could the banks have been in such dire straights if they had to be threatened to take TARP money back in late 2008?

First nine banks were forced to take bailouts - The Boston Globe


So, clearly the major banks (at least in Oct. 2008) were NOT in any great danger, which proves that QE since then had little to do with helping the banks.

One could argue that the massive toxic asset purchases helped save a few banks. But there is no factual proof of a structural collapse had even this not taken place. And I could care less what 'experts' think (again, many of the same experts who completely missed the housing crash...including the Fed itself).

And once again, remember who was calling out the loudest for the Fed bailouts back then...the banks. Hardly an unbiased source.


The end result is the same, there is no unbiased, factual proof that anything the Fed did averted a depression AND there is no unbiased, factual proof that the economy would not have recovered far faster and more completely had the Fed just stayed out of it.

Plus, Greenspan admitted that QE did not help the real economy.

DA60 said:

C

How could the banks have been in such dire straights if they had to be threatened to take TARP money back in late 2008?

First nine banks were forced to take bailouts - The Boston Globe


So, clearly the major banks (at least in Oct. 2008) were NOT in any great danger, which proves that QE since then had little to do with helping the banks.

One could argue that the massive toxic asset purchases helped save a few banks. But there is no factual proof of a structural collapse had even this not taken place. And I could care less what 'experts' think (again, many of the same experts who completely missed the housing crash...including the Fed itself).

And once again, remember who was calling out the loudest for the Fed bailouts back then...the banks. Hardly an unbiased source.


The end result is the same, there is no unbiased, factual proof that anything the Fed did averted a depression AND there is no unbiased, factual proof that the economy would not have recovered far faster and more completely had the Fed just stayed out of it.

Plus, Greenspan admitted that QE did not help the real economy.

Click to expand...

"By propping up the prices of the assets on their balance sheets with QE the FED allowed them to continue to lend and thus for companies to sell and consumer to buy. There is no question in any specialists' minds, that this did happen. The question is to which extent. But it is pretty certain, that the negative impact of falling asset values would have, if it had gone unchecked, caused a depression."

The TARP was fine and good and prevented instantaneous meltdown. It did not solve the problems with the continued decay of capital. That had to be stopped, if lending was to be held up, which was essential to prevent economic activity freezing. Do you know how hard it is to sell smart phones in a chaotic economy if you cannot use leasing contracts? And who would have bought those refinancing debts with the capital base of banks shrinking?