Greenspan Legacy Submits to Its First Review: Caroline Baum
bloomberg.com
Excerpt:
As for his legacy, the early assessment of Greenspan's role in recent asset bubbles isn't exactly exculpatory, according to economists who participated in the Cato Institute's 24th Annual Monetary Conference, ``Federal Reserve Policy in the Face of Crises,'' on Nov. 16.
``Among the consequences of the policy of maintaining interest rates at an inappropriate low level were credit and mortgage-market distortions, discouragement of personal savings, incipient inflation, and depreciation of the dollar foreign exchange rate,'' said economist Anna Schwartz.
Schwartz, who co-authored ``A Monetary History of the United States, 1867-1960,'' with the late Nobel Laureate Milton Friedman, was referring to the Fed's decision to leave the funds rate at 1 percent from July 2003 to June 2004, ``a policy unjustified in view of the economy's growth rate,'' and to raise it ever so slowly during the next two years.
Had the Fed been forward looking, it would have heeded the signs from leading indicators -- the yield curve was steep and getting steeper -- which had turned a solid green. Instead, policy markers were fretting over deflation, or a decline in the price level, just as the economy was taking off. |
