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Reply #17: As Economy Thrived Under Greenspan, So Did Debt [View All]

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54anickel Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Jan-23-06 07:59 AM
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17. As Economy Thrived Under Greenspan, So Did Debt
Edited on Mon Jan-23-06 08:24 AM by 54anickel
Imbalances Make Federal Reserve Chairman's Legacy Unclear

http://www.washingtonpost.com/wp-dyn/content/article/20...

snip>

"The jury is out on his legacy in large part because of the debt" and the trade deficit, said Stephen S. Roach, chief economist at Morgan Stanley. "You will not be able to truly judge his accomplishments until we see how this plays out in the post-Greenspan era."

Creating Debt


Greenspan and his Fed colleagues agree that part of the growth in household debt and the trade gap is the side effect of policies that helped steady the U.S. economy after the stock bubble burst in 2000. The Fed's low interest rates encouraged consumers to borrow and spend on houses, autos and other goods, spurring economic growth for several years when businesses were cutting jobs and reluctant to invest. And it was no surprise that consumers spent much of their borrowed money on imports, causing the trade deficit to swell. But in the view of central bank policymakers, the alternative would have been worse -- a longer and more painful downturn.

Greenspan's Fed didn't do it alone, economists agree. Other factors helped fuel the borrowing binge, including global financial trends that have helped keep mortgage rates low and prompted lenders to extend more credit to more people.

The result is a prosperity built on borrowing, say many economists, pointing to a string of recent records and firsts:

snip>

The Fed chairman told Congress in June: "I think we've learned very early on in economic history that debt in modest quantities does enhance the rate of growth of an economy and does create higher standards of living, but in excess, creates very serious problems."

Greenspan didn't define "excess," but economists see troubling possibilities: A sudden reversal in housing prices could trigger a recession if consumers cut back on spending and households have trouble paying their mortgages. The trade gap could swell to a point that forces a sharp fall in the dollar and surge in interest rates, also causing a recession.

more...

Now look at them yo-yo's, that's the way you do it
You play the market like on CNBC
That ain't workin', that's the way you do it
Money for nothin' and your chicks for free
Now that ain't workin', that's the way you do it
Lemme tell ya, them guys ain't dumb
Maybe get a blister on your little finger
Maybe get a blister on your thumb

We got to install microwave ovens
Custom kitchen deliveries
We got to move these refrigerators
We got to move these color TV's

.....


I shoulda learned to play on margin
I shoulda borrowed against my home
Look at that mama, she got it stickin' in the camera
Man we could have some
And he's up there, what's that, credit derivatives?
Bangin' out the dollars like Bernanakeeeee
Oh, that ain't workin' that's the way you do it
Get your money for nothin' get your chicks for free

Now that ain't workin' that's the way you do it
You play the market like CNBC
That ain't workin' that's the way you do it
Money for nothin' and your chicks for free

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