Greenspanism Looking Pretty Good...

Martin Wolf is gloomy:

A year of living dangerously for the world: It is now almost a year since the US subprime crisis went global. Many then hoped that the repricing of risk would be no more than a brief interruption.... Such hopes have been disappointed.... So where is the world economy now? And where might it go? Here are some preliminary answers to these questions.

The answer to the first comes in two main parts: continued financial distress and commodity price rises.... Equity investors are not the only people worried about the health of banks. The banks themselves are also worried. Spreads between rates of interest on inter-bank lending in dollars, euros and sterling and expected official rates... [o]n six-month loans... are now as high as at the two previous peaks, in September and December of last year.... This is no mere liquidity crisis. The banks are expressing concern about the solvency of their peers....

Meanwhile, the price of oil is close to $150 a barrel.... has doubled over the past year. In real terms, the price of oil is now 25 per cent higher than in 1979.... [W]hy are commodity prices soaring when the world economy is slowing?... Producers will leave oil in the ground if the rise in real oil prices is expected to be faster than the return on the alternative assets. What determines the current price then is the expected future price. The most important drivers have been the prospective growth in the demand of emerging countries, particularly China, and gloom about alternative sources of supply....

So what happens to the world economy next?... It is hard to see any outcome other than a sustained slowdown in the world economy.... [R]isks could combine in dangerous ways. An attack on Iran might push the price of oil above $200.... If the ongoing deleveraging of the US economy weakened US consumption, the economy might go into a deep recession. US fiscal deficits would then soar and long-term US interest rates might jump. This could make the debt dynamics of the US government look very unpleasant. A flight from the dollar and dollar bonds might even ensue. Who would then want to be running the Federal Reserve?

The good news is that the world economy has held up surprisingly well. The bad news is that the risks remain squarely on the downside...

My reading is somewhat different. Back in the second half of the 1990s, various people went into Alan Greenspan's office. "Raise interest rates!" they said. "Let unemployment go up! The Phillips curve can't have shifted in this far! The natural rate of unemployment can't have fallen so far so fast! These stock market valuations can't be rational! We are headed for a big crash, or a big inflationary spiral--unless you change course now!"

Alan Greenspan responded that there was no sign of overly-tight labor demand, no sign of accelerating demand-pull or wage-push inflation that would warrant interest rate increases. People were indeed investing enthusiastically in high-tech start-ups and those buying stocks at outsized price-earnings ratios. But the people doing the buying and investing were relatively well-off, and were grownups. If it turned out to be a serious bubble, and if the unwinding of the bubble triggered a financial panic and threatened to produce a high-unemployment recession, then would be the moment for the Federal Reserve to step in and clean up the mess. In the meanwhile, it would be a shame to destroy millions of jobs and wreck a period of 4%+ economic growth just because the Federal Reserve thought that it knew better than grownup investors what prices they should be paying for stocks and shares in high-tech startups, and feared that there might be trouble in the future.

Similarly, in the middle years of the decade of the 2000s, various people went into Alan Greenspan's office. "Raise interest rates!" they said. "Let unemployment go up! Long-term interest rates cannot stay this low for long! The sustainable pace of construction can't have risen so far so fast! These real estate valuations can't be rational! We are headed for a big crash, or a big inflationary spiral--unless you change course now!"

Alan Greenspan responded that there was no sign of overly-tight labor demand, no sign of accelerating demand-pull or wage-push inflation that would warrant interest rate increases. People were indeed building houses and buying mortgages and taking out home-equity loans enthusiastically at outsized price-rental and mortgage-value income ratios. But the people doing the buying and investing were relatively well-off, and were grownups. If it turned out to be a serious bubble, and if the unwinding of the bubble triggered a financial panic and threatened to produce a high-unemployment recession, then would be the moment for the Federal Reserve to step in and clean up the mess. In the meanwhile, it would be a shame to destroy millions of jobs and wreck a period of 3%+ economic growth just because the Federal Reserve thought that it knew better than grownup investors what prices they should be paying for mortgages and houses, and feared that there might be trouble in the future.

The unwinding of the dot-com bubble in 2000-2002 went remarkably well: no significant macroeconomic distress, and less financial panic and distress than I believed possible. The unwinding of the real estate bubble in 2007-2009 is so far not going well. There is, by contrast, more financial distress than I believed possible. Who thought that quantitatively sophisticated hedge funds would have enormous unhedged exposure to subprime risk? Who would have thought that highly-leveraged investment banks with an originat-and-sell business model would keep lots of the securities they had originated in their own portfolios--and kept them because they were high yield for their rating, i.e., because the market did not believe they were as low risk as the investment banks had bamboozled the ratings agencies into claiming? Who would have thought that those buying subprime mortgage securities from the likes of Countrywide had done no investigation into how Countrywide was screening out borrowers?

But so far--look: In the dot-com boom of the 1990s we were the winners. The rich investors of America built out a huge amount of fiber-optic cables and conducted an enormous amount of experimentation in business models from which we all benefit. In the real-estate boom of 2000s the rich investors of America and the world built an extra four million houses and loaned the rest of us money at remarkably low interest rates for five years. Those who moved into newly-built houses with teaser-rate mortgages wish those teaser rates would continue--but they won't, and in the meantime they got to live in a nice house for quite a low rent. Those of us who took out big home equity loans wish the low interest rates would continue--but they won't. And those of us who felt rich because our house values have appreciated wish we still could think of ourselves as sleeping on a pile of gold--but we can't.

The dot-com bubble and the real-estate bubble were bad news for the investors in Webvan, WorldCom, Countrywide, FNMA, and securitized subprime mortgages. But they were, by and large, good news for the rest of us. And investors are supposed to take care of themselves.

Now we are not yet out of the woods. If the tide of financial distress sweeps the Fed and the Treasury away--if we find ourselves in a financial-meltdown world where unemployment or inflation kisses 10%--then I will unhappily concede, and say that Greenspanism was a mistake. But so far the real economy in which people make stuff and other people buy it has been remarkably well insulated from panic at 57th and Park and on Canary Wharf.

Comments

[RW]

"Greenspanism Looking Pretty Good..."

Are we channeling The Onion today?

[bakho]

Greenspan monetary policy would have been much more effective if his regulatory policy was half as good.

[Touche]

[jim]

I'm teaching a project management class this summer. The hardest thing for students to understand is risk. They have a very hard time with the concept of uncertainty. They tend to think that there is a predetermined outcome, which is hidden from us because of our ignorance.

This sort of consequentialist language:

"if we find ourselves in a financial-meltdown world where unemployment or inflation kisses 10%--then I will unhappily concede, and say that Greenspanism was a mistake"

seems to me to buttress that attitude.

Feynman's criticism of NASA -- that they were like the child who because he has run out into the road before and not been run over begins to think it's OK to run out into the road -- applies here, too.

[derrida derider]

A good post, but it fails to get at the real reasons why the tech-boom party of the 1990s left only a mild hangover while the late real-estate party has left us feeling like our eyes are being drilled out from the inside, even though (as you point out) the quality of the champagne at the second party was a little better than at the first party.

It's two things - fiscal policy and a real supply side shock. Unlike in 2000, there is no ammo left in the fiscal policy magazine - we shot it all off into the air during the party. The full faith and credit of the US government is worth a lot less now than then. And of course the oil shock has reduced real incomes at the same time, which will amplify the effect on spending and consumer confidence.

[skeptonomist]

Those serious grown-ups whom you think should be left alone periodically cause bubbles and busts. The Great Depression convinced most people that they had to be restrained. Do you want to go back to 1929? Even if financiers always knew what they were doing, they have a habit of taking control of government policy to their own benefit and the detriment of the general public and the economy - they obviously do not always play with their own money.

The idea that Alan Greenspan possessed superior wisdom is laughable. What sort of wisdom was displayed by his acceptance of the absurd economic forecasts of 2000, and his claim that the debt would be paid down too fast without tax cuts? (In fact, there has been no actual reduction of the gross debt, which is what will have to be paid back, since 1969). Was it wise to give the green light to ARMs and financial "innovation" and to deny the housing bubble? Some of the things he did or is supposed to have done before 2000 happened to coincide with favorable turns in the economy, and the legend of the Maestro and the great and benevolent Federal Reserve was manufactured.

Suppose the IPO's had been restrained and the Stock-Market bubble of the late 90's had been safely deflated before they led to the bust of 2000? Isn't this what fiscal and monetary policy are supposed to do? If those policies are used to stimulate only, the results are predictable - the mess we are in now, where we may have run out of possible stimulation.

[skeptonomist]

On second thought, have we been suckered as RW suggests - is this really satire like the New Yorker cover? Not fair - satire is expected from the New Yorker.

[save_the_rustbelt]

"But so far the real economy in which people make stuff and other people buy it has been remarkably well insulated from panic at 57th and Park and on Canary Wharf."

Huh?

Maybe not panic, just a steady and scary erosion of purchasing power and cash flow, increased job insecurity, mortgage foreclosures and etc.

This is bad, really, really bad, and most of the eggheads don't "get it."

[albrt]

Who would have thought people would buy into an investment scheme based on an undertaking of great advantage, but no one to know what it is?

Answer: Anybody who has been paying attention for any significant period of time during the last three or four hundred years, except perhaps economists and journalists, depending on how you define "paying attention."

The real estate bubble was quite different from the Clinton tech bubble. The real estate bubble involved no real significant advances in technology, just the very well understood mortgage financing mechanism being re-tooled with the same Ponzi mumbo jumbo that has been behind every massive swindle since money was invented. It had relatively little to do with overnight rates (remember the "conundrum") and everything to do with a bad case of Brownie-ism among regulators. In fact, Brownie could be considered the paragon of mop-up-later agency action.

And have you been to the places where the production houses were built? The deterioration is already easily observable in the remote planned communities of Arizona, Nevada and the Central Valley, with no obvious stopping point between where they are now and Mad Max territory. This was one of the grandest misallocations of resources to ever emerge from a low interest rate environment. It is not good.

[Bram Cohen]

Yes, very few regular people got hurt ... except for those people who got overextended buying houses in 2007. Sorry suckers!

I agree with the other poster who said the real problem with Greenspan was his rigid stance against regulation, not anything he did wrong with monetary policy.

[Fifi]

Yeah, bakho is spot on. No pilot in the cockpit.

It is not so much a liquidity or even a solvency crisis but a trust crisis.

The solution will not be financial. The Fed can do all it wants through its usual tools and now the TAF, TSLF and PDCF, it matters very little if the transmission is plain broken, aka. the US banking system and, beyond that, the financial system as a whole.

And this is what the TED spread, the repeated seizures of the various debt markets (or OTC parodies of a market) and the flight to cash, foreign currencies and (hhharrrg) gold are saying. It's broken. No one trust anyone. The Fed is pushing on a string.

The Fed, the Treasury, the agency alphabet soup and Congress need get dirty and clean up the place to restore trust. I don't have much idea what it entails but whatever it is, it needs to be done and bring out in the open all the crap which is cluttering the system.

One thing I know though for sure: Glass-Steagall needs to come back and with a vengeance.

It took 70 years to get there but now that the trust in the US financial system is gone and squandered, it's going to take something truly drastic to restore it. Otherwise, even if all the stars align nicely and we avoid a deep recession, we're still going to end up with a zombie financial system and a Japanese-style stagnation squared.

[Carlomagno]

BDL wrote:
-----
The dot-com bubble and the real-estate bubble were bad news for the investors in Webvan, WorldCom, Countrywide, FNMA, and securitized subprime mortgages. But they were, by and large, good news for the rest of us. And investors are supposed to take care of themselves.
-----

The real estate bubble was good news in the same way that a snort of cocaine is good news. It makes you feel like you're on top of the world while the drug's effects last. Once they wear off, it doesn't feel like such a good idea any more.

As Roubini has pointed out, the overinvestment in real estate that the US has seen during this decade is the worst form of unproductive investment that one could imagine. It does nothing to enhance productivity and in some ways even undermines productivity growth, e.g. by hampering labour mobility.

BDL, get off your cloud.

[Bupa]

Brad is not worried.

Nouriel Roubini is:

In a series of recent writings on the RGE Monitor Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business - has argued that the U.S. is experiencing its worst financial crisis since the Great Depression and will undergo its worst recession in the last few decades. His analysis leads to the following conclusions:

This is by far the worst financial crisis since the Great Depression
Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust

Dozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust

Some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly.

In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.

The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression

Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.

This financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion.

This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.

This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (July).

This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices. This will be a long, ugly and nasty U-shaped recession lasting 12 to 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects.

Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.

The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing; while the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.

The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.
But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 20-30% will further reduce inflationary pressure. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster and severe recession cycle.

The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for it existence.

Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008.

[Slocum]

"In the meanwhile, it would be a shame to destroy millions of jobs and wreck a period of 3%+ economic growth just because the Federal Reserve thought that it knew better than grownup investors what prices they should be paying for mortgages and houses, and feared that there might be trouble in the future."

This seems to me to be the crux. It's one thing to clamp down in an economy when inflation is rising, but quite another to clamp down when inflation is low. So low, in fact, that Krugman, during the inflation of the bubble, was using his megaphone at the Times to warn about the dangers of *deflation*.

Does anybody really think it was politically feasible to take action to slow the economy and send millions to the unemployment line simply because the values of people's homes were rising too fast? Please -- what politicians are going to say -- "Sorry, you need to experience some periodic bouts of unemployment so we can make sure the value of your house doesn't get too high, and the mortgage rates you pay don't get too low. Also we want to make sure too many lower income people don't become homeowners."

The DeLong commentariat would have gone nuts in response to such policies (and not favorably).

[Phil P]

I half agree with Brad's post, while the other half is made seriously ill. The part I agree with is that monetary policy is not the tool for dealing with asset bubbles, so Greenspan's policies were probably basically right. What makes me ill is the attitude of smug complacency towards asset bubbles, and the interests of the middle-class savings and investing class. "...the people doing the buying and investing were relatively well-off, and were grownups..." Brad's mental map of the economy seems to belong to a Depression-era world made up of a minority of plutocrats and a mass of impoverished factory workers, where unemployment is the only problem. Does he not know how many people own stocks these days and are hurt by the volatility of the financial markets? As for the "grownups" part, I know from personal acquaintance how many intelligent and well-educated people are frightfully naive about investing, and these are people who do most of what little savings we as a nation do.
"...investors are supposed to take care of themselves." Tell that to the employees of Enron, or for that matter, the employees of sound companies who nevertheless saw their 401Ks melt away, and then maybe lost their jobs on top of that. I'd better stop there, before I fall into what Phil Gramm would call "whining". I just want to make the point that smugness and complacency is not necessarily a monopoly of the right.

[piotr]

My view is that it is not given that the extra real estate built is a definite plus.

One problem that I see is energy efficiency, and we invested a lot in exurban homes and large cars. Now we have hard time decreasing the demand for fuel to maintain the stuff. A temporary excess of fiber was not a constant drain on resources, and in time, one could find uses for it. A pool of monster houses or houses in monster locations, and monster vehicles is not as benign.

The other annoying thing is that it is OK for the invisible hand of the market to misallocate a trillion, but politically impossible to spend a trillion is a genuinely useful fashion, like more rational health care or energy production.

[Kelly]

"Does anybody really think it was politically feasible to take action to slow the economy and send millions to the unemployment line simply because the values of people's homes were rising too fast? Please -- what politicians are going to say -- "Sorry, you need to experience some periodic bouts of unemployment so we can make sure the value of your house doesn't get too high, and the mortgage rates you pay don't get too low. Also we want to make sure too many lower income people don't become homeowners.""

Slocum; Is that the only alternative you can come up with? Is winning the blog argument all that matters?
I think what Roubini has outlined is an extreme situation requiring some serious planning. We can't make any headway in my opinion, if we don't understand what went wrong.

A more measured approach might be to acknowledge the errors and work to convince the political class to move toward regulating and dealing with our situation based on the understanding of what we have recently done so wrong.

[Sonia]

Three of the major differences are: First, the tech bubble and the real estate bubble and the bursting thereof had very different distributional effects by income and by region. Few moderate income individuals were heavily invested in tech or any stocks. The overpromotion of homeownership lead to the loss of whatever small savings newly bankrupt families had. Furthermore as albrt points out anyone who has driven in parts of Southern California (try San Diego to Palm Springs and then over to L.A.) sees abandoned developments that will soon turn to dust (was water ever available). Second, the banking sector was not the primary driver of inflation in tech stock prices. Third, consumption was not supported by rising equity prices in the same was as consumption was supported by rising home values. The inevitable decline in consumption to match income was never going to be smooth. The shift from unstatinably low oil prices to a higher equilibrium may have overshot contributing further to a reduction in consumption from domestice sources. Keynsian investment in infra structure might be one step to ease the transtition from a real estate driven investment over consumption economy to a more balanced and more regulated economy.

[sglover]

After reading this apologia, all I can say is that after his November sweep, Obama had better keep DeLong far, far away from any policy-making. As albrt points out, much of the "investment" that Greenspan enabled in this last go-round was as productive as the Great Pyramid at Cheops.

[Eric in Santa Fe]

I would have more respect for Greenspanism if he and his crew and taken note of the inverted yield curve when it first appeared.

That was a glaring signal that something was distorting interest rates and that some kind of trouble was on the horizon. A little preventative reigning-in of the worst speculations would have been wise, especially those that placed public funds at risk, as we are seeing today with bail-outs of too-big-to-fail institutions.

[Slocum]

"A more measured approach might be to acknowledge the errors and work to convince the political class to move toward regulating and dealing with our situation based on the understanding of what we have recently done so wrong."

Certainly. But actions that are politically possible now simply would not have been three or four years ago. The question of "What should we do now?" is a different one than, "Did Greenspan screw up?".

Did a lot of people think we were in a real-estate bubble a few years ago? Sure. But quite a few people think we're in an oil bubble now -- are we? Real estate in the UK has had as great a run-up in value as in the U.S. -- will the market crash there too? By how much and when? If you think the U.S. bubble bursting was certain and obvious three years ago, you much be equally certain about the UK now -- are you shorting UK real-estate? The same rapid rise in real-estate values has happened in other European countries also (Spain, Ireland):

http://www.nzherald.co.nz/category/story.cfm?c_id=34&objectid=10520610

Has Greenspan or the Bush tax-cuts been responsible in all these places as well?

[Roger Bigod]

I vaguely remember something from my economics course about money supply being a function of debt creation. Applying it to these cases, there wasn't that much debt created in the dot.com bubble. Some margin loans, some fraudulent debt by companies like Enron, some borrowing against stock options. And it only lasted a year or so. I don't know the amount of bad debt at the base of this bubble, but it was run through multiple levels of amplification as the loans were repackaged into different forms of alphabet soup.

I was also under the impression that creating money was such an important social function that it had to watched over by the Platonic Guardians at the Fed. How did that work out?

[mitchell porter]

A suggestion from the other side of the Pacific:

While it is of interest to understand the cause and effect of the last two decades properly, may I suggest that the way forward for the USA lies in trying to revive the economy around those steps towards sustainability, like green energy, which must be taken anyway. If millions are out of work because of the housing bust and hundreds of millions are losing their discretionary income because of the commodity crunch, then think about what it would take to make the green energy sector the heart of the economic recovery and the center of a truly new economy. Get those urban gangs out in the desert putting up solar panels, if necessary.

[justlanded]

Not to get too personal, but: Surely if you lived in a home not too far from your tenure-protected job you would have a substantially different opinion about America as a whole winning from this latest bout of Greenspanism than those who live in an exurb and drive about 40 miles to their unstable job paying $4.50 a gallon. The key difference between the dot-com bubble and this bubble is that when the public buys stock they do not leverage 5x and up as they do when they buy homes. Nor did they invest their life's savings in dot-com stock.

[Blissex]

«The same rapid rise in real-estate values has happened in other European countries also (Spain, Ireland): http://www.nzherald.co.nz/category/story.cfm?c_id=34&objectid=10520610 Has Greenspan or the Bush tax-cuts been responsible in all these places as well?» Yes, both indirectly and as a model for similar policies. The politics of pandering to asset owning interests and the financial sector have been the same in a lot of places, and in many smaller countries enabled by easy, easy money from the carry trade or the local branch of the Fed*mart ("Always low interest rates -- always!").

[Andy]

It is the lax lending and low inflation environemnts during the "Greenspan" period that led to the mess we are in today and the huge deficit we have and are going to continue to have as described here : http://www.savingtoinvest.com/2008/07/482000000000.html.

Greenspanism = Bubbleism.