We have just 17 days to wait till the publication of Alan Greenspan’s autobiography, "The Age of Turbulence: Adventures in a New World". It’s 544 pages long, so hopefully nobody will buy it for me for Christmas, but from the synopsis that’s been released we learn what a great job he did of saving the world:
The most remarkable thing that happened to the world economy after 9/11 was …nothing. What would have once meant a crippling shock to the system was absorbed astonishingly quickly, partly due to the efforts of the then Chairman of the Federal Reserve Board, Alan Greenspan. The post 9/11 global economy is a new and turbulent system – vastly more flexible, resilient, open, self-directing, and fast-changing than it was even twenty years ago.
Events of the last couple of months show that the economy is a little less flexible and resilient than claimed – and many would argue that the huge imbalances in the western economies have resulted from Greenspan’s actions at the Fed. Whilst rates needed to come down post 9/11 and the bursting of the tech bubble, they were then kept at emergency levels for far too long. The Fed Funds rate was kept at 2% or below from September 2001 all the way through to November 2004, yet US growth had recovered significantly by the third quarter of 2003 and was probably well above trend by early 2004. This mispricing of the cost of money simply created another bubble, this time in residential property, as well as increasing the attractiveness of leverage in the financial sector. The unwind has only just begun. Bernanke got the hospital pass, Greenspan got the book deal.