I.O.U.S.A - Addison Wiggin [30]
We have talked a lot about prices today, but for the sound money economist the money supply is the critical issue. If you increase the supply, you create infl ation.
If we aim at a stable price level, we’re making a mistake. Technology and other factors can keep prices contained, but if you’re increasing the money supply we still have malinvestment, excessive debt and borrowing.
Someone mentioned that the Fed might be too tight with money. I disagree. The last quarter of 1999 might be historic highs for an increase in Fed credit. . . .
Everyone likes it now because the bubble is still growing. But what happens when it bursts? Can you reassure me it won’t?
Greenspan: Let me assure you we believe in sound money. We believe if you have a debased currency you will have a debased economy. As I’ve said earlier, the diffi culty is defi ning what money truly is. We have been unable to defi ne a monetary aggregate that will give us a reliable forecast for the economy.
Paul: So it’s hard to manage something you can’t defi ne.
Greenspan: It is not possible to manage something you cannot defi ne.
A Short Visit with the Maestro
As chairman of the Federal Reserve for 18 years, Alan Greenspan presided over (among other things) the “ Black Monday ” stock market crash of 1987, the dot - com boom, and a minor recession in 2001. He is simultaneously lauded and criticized for his “ EZ credit ” policies that fueled the housing bubble of the past few years. Love him or hate him, it is clear even now, two years after his tenure at the Fed ended, c03.indd 54
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Chapter 3 The Savings Defi cit 55
that when Dr. Greenspan talks, the country — and most of the world — listens.
The fi nancial media gobbles up his every word, straining to decipher what has been coined Greenspeak, in reference to his painstakingly crafted and coded language, for which he has become famous. Having such a carefully honed language comes with the territory when everything you say not only must be reinterpreted and reported throughout the press, but also has the weight to impact global fi nancial markets. For this reason, that Maestro gives very few interviews, even now.
That ’ s why, when we were granted the privilege of sitting down with the former Fed chairman, we were highly aware that we had been awarded a unique opportunity. While there were many questions we could have asked him, his opinion on the savings problem in the United States was number one in our minds. What did he think, we asked him, of Ron Paul ’ s claims that the blame for America ’ s lack of personal savings rests at the door of the Federal Reserve?
“ The Federal Reserve has had very little to do in that particular scenario, and therefore, Ron Paul, with whom I agree on a number of issues, is mistaken in this area, ” he told us.
“ If fi scal policy is lax or savings are exceptionally low, there is nothing monetary policy or any central bank can do about that. All it can do is try to protect the system from being excessively affected by what would be an irresponsible policy on the part of the government. ”
The explanation Dr. Greenspan gave for the era of low savings and high spending over which he presided was very interesting:
“ The issue of rising wealth in the past 15 years or so is essentially a global phenomenon, and one that results because of the consequences of what was seen when the Cold War came to an end. The extraordinary amount of economic devastation behind the Iron Curtain induced a very large part of the so - called Third World to move signifi cantly c03.indd 55
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56 The
Mission
towards competitive market capitalism, the effects of which are twofold: one, a major decline in the rate of infl ation, and two, a huge increase in the propen-If fi scal policy is lax or savings are
sity to save around the world, but
exceptionally low, there is noth-
most dramatically in those areas of
ing monetary policy or any central
the world which