Federal Reserve Chairman Alan Greenspan said last Thursday, during questioning by the Senate's special committee on aging, that he does not believe that a housing price bubble exists on a national level in the United States. "Is Greenspan right?" asks Frank Shostak. To provide an answer to this question one needs to establish—or define—exactly what a bubble is.
Almost exactly ten years ago, a National Commission on Social Security Reform headed by Greenspan proposed a package of benefit cuts and tax increases, which Congress enacted with little change, and which turned out to be one of the most oppressive—and underhanded—things Congress ever did to younger Americans over Social Security. It also failed to solve Social Security's long-term problems.
The United States faces a situation that resembles the late 1970s when the world began to abandon the dollar and liquidate American investments, writes Hans Sennholz. It took two years of Federal Reserve inactivity and 20 percent interest rates to restore foreign confidence and lure foreigner investors and creditors back.
The private sector is good at satisfying consumer demand, but it's not much good at guessing what's in that grab bag that we call a budget deficit, writes Roger Garrison. The uncertainties associated with large federal budget deficits warn against exclusive focus on the total spending done by government. It does matter how that spending is financed.
The latest economic data indicate that the prospects for a sustained economic recovery have been further delayed, writes Frank Shostak in a wide-ranging review of the current economic moment. The low interest rate policy of the Fed remains the major factor behind the continued deterioration.
Critics of Austrian theory maintain that there is no justification for the notion that businessmen should fall prey again and again to an artificial lowering of interest rates. Businessmen are likely to learn from experience, the critics argue, and not fall into the trap produced by an artificial lowering of interest rates. Frank Shostak responds.
Was it just a Freudian slip that Greenspand started his recent encomium for Keynesian debasement with a reference to the Gold standard? It was probably inadvertent, but the contrast suggested between real, hard money, freely chosen by market processes, not arbitrarily by the State and its Financiers, was no less resonant for the fact that it was implicit, rather than as shockingly explicit as in Bernanke's recent speech on the subject.
The Fed has changed the rules under which it can inject liquidity into the system, says Sean Corrigan in this wide-ranging interview. The Fed has made several overt statements of intent that, if necessary, it will buy anything—corporate securities, mortgages, physical assets—it will conduct a "money rain" if it has to.
Most commentators have focussed, with merit, the Fed's official's alarmingly sanguine view that monetary inflation is a tool to combat evils and achieve all manner of economic good. But Ben Bernanke's most revealing remarks concern his subtle references to the Fed as just another branch of the federal government.
The Federal Reserve System may have run out of room to maneuver. Facing a looming recession, it resolutely lowered its discount rate and frantically expanded its credits. Eager to stimulate the sagging economy, it enabled and encouraged businessmen to invest more and consumers to go ever deeper into debt. Yet the specter of recession refuses to fade away.
