When legendary former Federal Reserve Chairman Alan Greenspan talks, people listen. And now, Greenspan is out with a new book, "The Age of Turbulence: Adventures in a New World," in which he "is harshly critical of President Bush, Vice President Dick Cheney and the Republican-controlled Congress, as abandoning their party's principles on spending and deficits." According to the New York Times, which got an advance copy of the book, "The Republicans in Congress lost their way...They swapped principle for power. They ended up with neither. They deserved to lose." Remember now, Alan Greenspan is no liberal. In fact, he's a libertarian Republican and Ayn Rand disciple. But he's also a truth teller, and now he's doing just that:
Mr. Greenspan described his own emotional journey in dealing with Mr. Bush, from an initial elation about the return of his old friends from the Ford White House - including Mr. Cheney and Donald H. Rumsfeld, secretary of defense - to astonishment and then disappointment at how much they had changed."I indulged in a bit of fantasy, envisioning this as the government that might have existed had Gerald Ford garnered the extra 1 percent of the vote he'd needed to edge past Jimmy Carter," Mr. Greenspan writes in his memoir. "I thought we had a golden opportunity to advance the ideals of effective, fiscally conservative government and free markets."
Instead, Mr. Greenspan continued, "I was soon to see my old friends veer off in unexpected directions." He expected Mr. Bush to veto spending bills, he writes, but was told that the president believed he could control J. Dennis Hastert of Illinois, the Republican speaker of the House, better by signing them.
It's amazing, except for everyone who was following the Bush administration and Republican Congress from 2001 to 2007, and who wasn't completely blinded by partisan loyalty. Also, if you had read the book written in 2004 about Greenspan's "friend," former Bush Treasury Secretary Paul O'Neill ("The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill"), you wouldn't be amazed at all. Just angry.
Now Bubbles Greenspan is telling the story his way, probably intending to make his successor the scapegoat, and hoping to absolve himself of blame for the economic and financial disasters coming at us, which he helped to create by flooding the world with dollars, first to abort the recession of 2001, then to finance the Bush deficits. This gushing spindletop of dollars had to go somewhere, and it went into the stock market bubble, then the housing bubble. By setting interest rates so low (at negative interest, in fact), plenty of what classical economists call "malinvestment" occurred, the carry trade and derivatives mushroomed, and the subprime lending con game took off. Hidden inflation (disguised by enforced low interest rates) is pummelling the middle class, and the US is borrowing $3 Billion every day from foreigners to finance our deficits.
Poor Bernacke, he now must deal with the mess Greenspan created. No doubt he will buckle to political pressure and lower rates intending to abort this oncoming recession triggered primarily by the subprime meltdown--- but every time he pours out more liquidity, it takes every larger amounts of dollars to achieve the desired effect. And if he lowers rates too far, foreigners will stop buying the daily $2 Billion of US Treasuries he must dispose of.
Such a conundrum. Helluva job, Al.