While Joe Stiglitz is right in much of his analysis, his prescription now is for the Fed to print money more aggressively. How is that different from what he criticizes Greenspan from having done?
We appreciate the glancing blow he strikes at US fiscal irresponsibility for taking on a 3 trillion dollar war with Iraq, trying to hide the cost, while cutting taxes for the wealthiest few. But his prescription for dealing with it by triggering inflation to prevent the recession is just as irresponsible, unless it is accompanied by some serious reform of the financial system and fiscal priorities.
He damns Greenspan for looking the other way while the Housing Bubble inflated, but where is Bernanke now supposed to look when he creates another bubble by printing money?
As you may recall, the moment in history that Greenspan turned his head and looked the other way was after a private visit paid to him by then Treasury Secretary Robert Rubin, about the time Greenspan made his famous 'irrational exuberance' speech. He then turned around and opened the spigots, and fueled the tech bubble in response to the Asian monetary and Russian default crises, and used the Y2K excuse for a second round.
It is for this that we called Greenspan 'the worst Federal Reserve chairman ever.' And he was coupled with one of the worst US presidents ever, a deadly combination. But we cannot help but think that they both are just pawns, as neither distinguished themselves in anything before they were given positions of trust, power, and stewardship, and willfully betrayed them.
The price of oil is rising because the US has triggered a worldwide bubble by inflating the world's reserve currency, and doing so for too long, with too much hubris. And like the subprime mortgage scandal, there were many enablers, and people who went along with it as an opportunity to gain personal advantages. And far too many who knew better but kept quiet, under the maxim 'go along to get along.'
Stiglitz himself put his finger on part of the problem in his piece, What I Learned at the World Economic Crisis, in The New Republic in April 17, 2000:
But bad economics was only a symptom of the real problem: secrecy. Smart people are more likely to do stupid things when they close themselves off from outside criticism and advice. If there's one thing I've learned in government, it's that openness is most essential in those realms where expertise seems to matter most.
Hey Joe, when are you going to speak up about the serial off balance sheet frauds perpetrated by the banks, who spent YEARS and many millions of dollars to get Glass-Steagall overturned? When are you going to speak about the manipulation of economic statistics and markets to mask what Greenspan turned away from? When are you going to talk about the outrageous lack of transparency being used to enrich the few again at the expense of the many as we speak today?
First they came for the workers, through outsourcing and globalization. Now they are going to be coming after the elderly and disabled, having squandered the monies they paid over many years into Social Security. Is this all part of a final overturning of the New Deal, and a return to Victorian Anglo-American oligarchy? Be careful how quickly you react, because a lot of would-be 'lord and ladies' are in reality just part of the hoi polloi.
We are in for one rough time. Greenspan, in his book and his words, is trying to rain on Bernanke's parade while absolving himself. Stiglitz is raining on both, while prescribing the 'hair of the dog that has bitten us' to cure the credit boom hangover that the US financial system has served up for the world. Well, we have a German shepherd sized dog that has bitten a chunk out of our hides, and we're still so drunk we have not quite realized it yet. And Joe doesn't help, except to trot out the same old snake oil.
Bernanke, Greenspan at Fault as U.S. Faces Slump, Stiglitz Says
By Mark Barton and Ben Sills
Feb. 26 (Bloomberg) -- Joseph Stiglitz, a Nobel-prize winning economist, said successive Federal Reserve chairmen have left the U.S. economy facing a ``very significant'' slowdown.
Current Fed chief Ben S. Bernanke was too slow to cut interest rates as the U.S. real-estate market deteriorated, while his predecessor, Alan Greenspan, ``actively looked the other way'' as the housing market inflated, Stiglitz said in a Bloomberg Television interview today in London.
The spillover from the biggest U.S. housing slump in 25 years, turmoil in financial markets and higher energy prices are curbing growth in the world's biggest economy. The financial- services industry is curtailing credit and conserving capital.
Greenspan ``is right that this downturn is going to be the worst downturn in a quarter century, but he's largely to blame,'' Stiglitz said. ``It's not just that he was asleep at the wheel, he actively looked the other way'' by dismissing the housing-price appreciation as ``froth.'' [Where was Stiglitz's voice when he was doing it? - Jesse]
Following mounting losses on past loans, banks have already taken writedowns of $163 billion since the beginning of 2007. President George W. Bush signed a $168 billion stimulus package that will deliver tax rebates to more than 100 million households.
Bernanke cut Fed interest rates twice last month, including an emergency reduction of 75 basis points between meetings, in a bid to prop up growth as the financial writedowns and the prospect of a further housing decline saw U.S. stocks slump. The S&P 500 index is down 6.6 percent this year.
`Too Late'
``Clearly they acted too late,'' Stiglitz said. ``The dramatic lowering of the main interest rate by 75 basis points was a panic not a prudent measure.''
The $3 trillion cost of the Iraq war, which diverted the country's resources from investment in economic productivity and sent the budget deficit higher, will continue to hold back growth in the U.S., Stiglitz said.
European monetary-policy makers may also be under- estimating the risks to economic growth, Stiglitz said. The European Central Bank's mandate, which sets price stability as the sole objective, is ``flawed'' because it prevents ECB President Jean-Claude Trichet from supporting job creation.
"He should not be focusing so much on inflation especially when so much of it is imported,'' Stiglitz said. ``Higher interest rates won't solve the problem of higher oil prices.'' [this guy is a "Nobel prize winning economist" and he says that? - J]
To contact the reporters on this story: Mark Barton in London at barton1@bloomberg.net ; Ben Sills in Madrid at bsills@bloomberg.net .
Last Updated: February 26, 2008 07:02 EST
