Using recent memory, it may seem that Greenspan became more irresponsible in response to the Asia Crisis in 1996. But looking further back on his career, signs of the same irresponsibility are evident much earlier.
Greenspan became Fed Chairman two months before the over-priced stock market went into melt-down in October 19, 1987. His response to this event was to pump in billions of additional dollars in liquidity. The stock market immediately took off on the upside and never looked back, until the Asia Crisis of 1996 and again in 2000 when the laws of gravity began to reassert themselves.
Since Alan Greenspan became Fed Chairman, the U.S. Dollar has lost 47% of its value. There's a reason for this. Over the eighteen years Greenspan has been Fed Chairman the U.S. economy has experienced only eight months of recession. While this has made him very popular among politicians, recessions are a necessary part of economic growth eliminating economic excess and mal-investment.
Greenspan has been far too accommodative ever since the very beginning.
To be fair, there were also other factors. Greenspan inherited the trend toward low inflation rates provided by Volker's policies. But he also inherited Reagan's delusional deregulation of the banking industry. This loss of monetary discipline led to a costly collapse of a portion of the banking industry. He also inherited Reagan's unsound tax policies which encouraged the growth of debt and the collapse of the savings rate.
But Alan Greenspan's response to these factors have been even worse than his monetary policy. He headed a commission to prevent a shortfall in Social Security, due to demographic changes, by increasing Social Security taxes. This provided a surplus of taxes to pay down debt, in order to provide borrowing room for Social Security obligations in later years.
Yet, having provided the surplus he designed to solve the Social Security problem, he agreed that the Social Security surplus should not be used to pay down debt -- but was the taxpayer's money and should be given away as reductions in the income tax rates for higher income earners.
Thus a tax on lower income earners was used to subsidize the tax rates of the wealthy. Now that the tax cuts have turned surplus into vast deficits, Greenspan proposes that Social Security be fixed again. This time by lowering benefits for those workers now paying the higher Social Security taxes.
That's Greenspan. He's been an irresponsible political hack since day one. We need a new central banker along the lines of Ian Macfarlane or Paul Volker.
Goebbels-like characters, such as Ben Bernanke and Alan Greenspan simply don't fill the bill. We need sound monetary policy, not political pandering.
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