I got a request who knows how long ago to write something about Greenspan, Bernanke, the Fed and what was going on with interest rates. I may study neuro-, psycho- and socio-economics and econo-physics but that basically means I know nothing about economics. So I asked NextStage's resident Sr. Economist, Tom Connor, what he thought. The rest of this post is his response. You can reach Tom at tconnor(at)nextstagevolution(dot)com.
This link, Greenspan link , is a nice summary of the guy.
It's interesting that early in his career he was extremely conservative, opposing use of monetary policy to alter direction in the economy. This is still an issue with many, some opposing boosting the money supply (and lowering of interest rates) to save those who took risk and lost. This view sees it as damaging when policies saves losers. Then, policy becomes a tool of the powerful.
It is also interesting that Bernanke recently made a speech where his words sounded more like someone with a behavioral background. Didn't Greenspan gain fame with his use of language?
I think the Fed will continue pumping money into the system and we'll end up with a stagflation like environment. Already inflation is rising, it's just that government numbers alter the way it is measured, so it doesn't show up in public statistics. But, if you price housing in something like gold (once Mr. Greenspan's favorite money) US house prices are declining. And, that's before the current US house deflation began.
The Fed is scared now. The sub prime problems have spread, banks in the UK are in a Jimmy Steward movie. Crowds are lined up outside waiting to withdraw funds, and huge amounts of money are being pumped into the system. Northern Rock Bank.
Many are surprised to learn the Fed is not a government agency, it is owned by banks. Banks are like most businesses, when the cost of their product is low they make more money. Low interest rates help banks make more money. Lots of interesting stuff if you Google 'ownership of Fed'.
I think you'll find the Greenspan interview on the Daily Show amusing, and fascinating. Greenspan makes some very interesting comments about modelling, as has Bernancke recently.
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