Greenspan Lauds 'Flexible' Economy, but Is Wary of Deficit

[sabra]

http://www.nytimes.com/2005/08/26/business/26cnd-fed.html?pagewanted=print

Greenspan Lauds 'Flexible' Economy, but Is Wary of Deficit

Alan Greenspan, the Federal Reserve chairman, said today that the economy is more flexible and capable of dealing with shocks and uncertainties than at almost any time in the past, but he also warned that opposition to free trade and the large federal budget deficit were the two greatest challenges to economic stability.

"The developing protectionism regarding trade and our reluctance to place fiscal policy on a more sustainable path are threatening what may well be our most valued policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks," Mr. Greenspan said at a conference in Jackson Hole, Wyo., according to prepared remarks released by the Federal Reserve.

The address at an annual event sponsored by the Federal Reserve Bank of Kansas City will be parsed in great detail by economists and policy makers for the departing central banker's views on a host of issues from the budget deficit and free trade to the booming housing market. Today's speech was one Mr. Greenspan's last as chairman; his term ends in January and can't be renewed by law.

Much of his 2,600-word address, which he called a "brief and necessarily incomplete review," covered the history of monetary policy since the creation of the central bank in 1913. But Mr. Greenspan, 78, also offered insights into his thinking in the last several years, particularly from the period after the stock market bubble burst in 2000.

[The Backlash Cometh]

1. Someone needs to buy Greenspan a ticket for a cruise ship

around the world. We could use the rest.

[OrangeCountyDemocrat]

2. Hey Alan.....BITE ME! n/t

[cliss]

3. Jeez, I really despise this man.

He looks like an old frog, or maybe a big-mouth bass with those gross fat lips hanging down.
------------------------

Greenslime gives us a Freudian slip: "our most valued policy asset: the flexibility of our economy". Note the word ASSET. This is what Alan Pondscum is all about. Ferreting out assets, and then sucking them dry until there's nothing left.

[RUMMYisFROSTED]

28. No he doesn't. So stop saying that.

[RiffRandell]

4. Fuck you, you repuke zomboid.

I despise him and his wife.

[Robert Oak]

5. more propaganda

1. those trade agreements are not free trade, they are by and for
multinational corporations and often by-pass any worker rights. If one examines the free trade theory, these, especially the China PNTR
agreement violate the theory itself

2. No one is recommending "protectionism". That's just another massive
propaganda statement. They are trying to label anyone who speaks
out about this "Multinational windfall" agreements as a protectionist.
It's the same tactic as making the term "liberal" a dirty word.
Protectionist would be to enact huge tariffs as well as shut down any trade at all. I have not seen that from anyone, anywhere who is speaking out about this.

What I find most interesting is how people in supposedly power and independent positions magically spew out the same propaganda that multinational corporations pay their planted pundits to say.

[Pirate Smile]

6. Greenspan Warns Budget Deficits Pose Risk

JACKSON, Wyo. - Federal Reserve Chairman Alan Greenspan on Friday cautioned Americans against thinking the value of their homes and other investments will only go higher, saying "history has not dealt kindly" with that kind of optimism.

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Greenspan also said that bloated trade and budget deficits threaten the long-term health of the U.S. economy.

His warnings, made at a high-profile economic policy conference, came as the Fed chief and prominent economists pondered his 18 years at the central bank and the legacy he will leave. He is expected to step down in five months.

Rising house and stock prices have made many people feel more wealthy and have helped to support consumer spending, a key ingredient of the economy's good health.

http://news.yahoo.com/s/ap/20050826/ap_on_bi_ge/greenspan;_ylt=AmrXJrHI_uwZiAFRKBeb5BCs0NUE;_ylu=X3oDMTA3bGI2aDNqBHNlYwM3NDk-

[skooooo]

7. But if we pay it down too fast.....

...it will cause inflation! (Didn't Bush say that back in 2000?)

[sakabatou]

8. What deficit? They'll just keeep rising the ceiling.

[The_Casual_Observer]

9. Spanny was all big on the tax cuts and free trade with china

He must not be very smart not to have known this would be the end result.

[speedoo]

19. Precisely.

Fucking asshole supported the Coward's tax cuts, and anyone who knew anything about economics knew that would lead to astronomical deficits.

Slimy shithead.

[ignatius 2]

29. Exacly! With Clinton all we heard him say was balance the budget,balance

the budget, cut inflation..etc. Then,he backed the tax cuts because we would have surpluse as far as the eye could see which wasn't too far. Hocus pocus with the data and wouldn't you know, according to these jackasses we were in recession since March 01,but too late, the rich had already gotten their tax cuts and fuck the rest of us.

He is pure slime as far as I am concerned. His policies caused the stock bubble and the current housing bubble and when that baby pops it is not going to be pretty.

Course, he and his multi-millions will have retired and it will be someone elses problem then.

[hwmnbn]

10. NO SHIT, SHERLOCK!!! ....

How much does Greenspan get paid to tell us being in debt is not a good thing?

[bemildred]

11. Ditto that.

:applause:

[ramapo]

13. Yeah...what a f'ing genius

What a freak show

[JuniperLea]

14. Greespan should spread his wisdom to his buddy...

The Shrubbery.

[texastoast]

15. You beat me to it

Greenspan did not earn his salary for that little jewel. You would think the neocons would complain that big government is spending money unwisely paying some egghead to say something so freaking obvious.

[driver8]

21. I was just about to post the same thing!!!

Greenspan has a way of stating the obvious, doesn't he???

[SammyWinstonJack]

26. Way too much!

:grr:

[napi21]

12. Ooooh, Shrub's not gonna like his buddy Alan for saying that!

I though Greenspan has been saying the high debt & deficit didn't matter in such a thriving and recovering economy? Did he change his mind????

[zoeb]

20. Greenspan has been back peddling for months on that

stuff but no one is listening. He is especially concerned with the large portfolios that Fannie Mae and Freddie Mac are carrying...but everyone has been poopooing him lately. I imagine its a matter of time before it bites them and the taxpayers in the arse.

He's also telling congress that they need to reduce the deficit by using a "number of deficit reducing methods." I.E. raising taxes and cut spending...not something this congress wants to hear.

[Sgent]

16. Even scarrier

to me isn't Greenspan, its who will replace him. If its not someone on the Fed Board now, be scared.

IMHO he has done more to help the economy since taking office than anyone else, presiding over unprecidented growth, low inflation, and very mild recessions.

Note, the recessions have been very, very mild historically. They also will always happen in a capitalistic economy. The one thing that I will mention as well is the phenomenal budget surpluses during the last few years under Clinton. However, they peversely probably caused much of the collapse at the end of his term and for the first year or two of bush.

[Double T]

17. Budget and Trade Deficits Have ALREADY adversely affected.....

the U.S. Economy. Payback time is just around the corner and it isn't going to be pretty.

[AllyCat]

18. Gee, Alan! Ya' think? eom

[shantipriya]

22. Greenspan?

Now he tells us. What a scumbag?All this while he was for the Administration policy and rarely criticized it.Now that he is retiring and doesn't need the approval of Shrub,has started telling the obvious.

[Lindsay]

23. Mr. Greenspan has a firm grasp

of the obvious.

About damned time, too.

[OzarkDem]

24. I guess he's warning corporations

that cooking the books won't keep the value of their stock rising forever, it will take a lot more fancy footwork with inflation and rising interest rates. Time to cash in those stock options before they start looking like Confederate money. Party is over for corporate America.

Didn't we read recently that corporate leaders compensation increased 54% in the last year alone?

[wli]

25. the dollar won't be worth anything in a couple years anyway n/t

[FreeStateDemocrat]

31. What rising stock prices? Not the Dow Industrial or S & P 500.

[Demeter]

27. Talk About Whistling Past the Graveyard!

Ask not for whom the Dow tolls, it tolls for thee, Alan.

[pinniped]

30. Recall, before the (s)election this monkey said deficits didn't matter.

Why do they matter of a sudden now????

[lovuian]

32. Greenspan questions home values

http://www.chron.com/cs/CDA/ssistory.mpl/business/3327470

Fed chief also says huge deficits threaten economy
By JEANNINE AVERSA
Associated Press

JACKSON, WYO. - Federal Reserve Chairman Alan Greenspan on Friday cautioned Americans against thinking the value of their homes and other investments will only go higher, saying "history has not dealt kindly" with that kind of optimism.

more...

Greenspan is bound and determined to take out the Housing Industry the place Americans have their wealth!!!

I can't wait till he retires!!!

[nadinbrzezinski]

33. no, not quite

Krugmman has also said the markets, especially in the coasts are overvalued by quite a bit... and locally it is slowing down

[Buns_of_Fire]

34. Deja vu all over again?

During the high-flying stock market days of the 1990s, the Fed chief in December 1996 famously questioned whether Wall Street investors were engaging in "irrational exuberance." Despite the warning, stocks continued to soar. In 2000, the stock market bubble burst and wiped out trillions of dollars in paper wealth.

[skids]

35. Ah housing. The ultimate selfish investment.

Now, I begrudge noone owning a place to live. Or at least, owning one place that is within their means.

Think about it though. Housing is an investment that benefits noone but yourself. No product comes from it; no real stimulus to the rest of the economy. They provide a great place to store appliances, and to cook food, but they do not manufacture those appliances, and do not produce that food (for the most part.) At best, those who improve the homes offer a better product back to the market (though what they also inadvertantly do in the process is create a gap in the market where there is not much product around for first-time buyers who really "don't need quite that much house.")

A lot of people don't stop at that, though, and at the risk of ruffling some feathers, let's take a look at what really goes on in this "industry."

Instead of allowing the normal market forces to bring prices down to where their fellow citizens can afford to buy a house, lots leverage their existing equity, and take on more debt, buying more houses than they need so that they can get renters and market appreciation to pay for something they didn't even work for. Or worse yet they simply hang on to the house and try to "flip" it... doing no work and getting rich like every good American dreams of. Sure it's all legal (or it is in most cases) but in essence what they are doing is interposing themselves between their fellow citizens and the slice of the American pie those folks want so badly.

Stretch that credit as thin as they'll let you... after all, it's just shuffling papers, and we all know the rise in value will outweigh the interest. Who cares if Joe the copier repairman fresh out of a two-year college is locked out of the market. After all, those type of people are only good for making a few bucks off as a tenant.

So then the industry gets to the point where it really should say "OK, noone can really afford these houses anymore, cool it." But that would mean less work for all the realtors and bankers and whatnot. And, as we know, whether or not an industry should expand, in America, the "only way to go is up." Even if it isn't doing anyone any good. So they find new ways to lend money to people. More money than they should, in all good conscience, lend those people. Soft second mortgages, artificially low rates, low down payments, etc. etc.

Out of desperation, people take those offers. Heck in many cases it is cheaper than rent, right? On a shoestring budget these folks park themselves in a place where they are now paying rent to the bank, and won't own any of the house for years on out. Some can't even afford to furnish. But at least they "got in" before the market got worse, right? They bite their nails and hope their jobs aren't outsourced before they get enough principle payed that they can still be solvent when it all comes crashing down.

And it will. Everyone who knows the value of a dollar knows it will, and knew it would all along.

So in a game where the object was to play "keepaway" with houses so the poor folks in the middle of all this end up giving you money they borrowed for you from the bank, we end up with two types of losers. The poor folks, and the ones who reached too far into the cookie tin and are overextended.

For the former, I pity them. I think they are rubes, but I still pity them. For the latter, no pity. It was a sleazy thing to do. Free market capitalism played to its finest sociopathic hilt. I hope you're proud of yourselves.

As loathsome a partisan as he is, Greenspan doesn't need to try to destroy the housing market. It's doing a damn fine job of committing suicide. What he's doing is warning people off so less people get hurt.

Yes, the housing market. The place where the majority of Americans keep their.... debt.

[Buns_of_Fire]

39. Housing AS an investment rubs me the wrong way

I remember, about 25 years ago (geez, I'm old enough to talk about things that happened 25 years ago!) being at a focus group of new homeowners about whether or not they were satisfied with their builder. It went round and round, some satisfied, some not so, until one of the more yuppified of the lot sniffed, "I'm pleased. I think my investment will do well for me in the long run."

The other oh-so-proper Yuppies around the table voiced their agreement. "I think I made a wise investment." "This should increase my net worth within a few years." On and on, until it got around to me.

"Our house isn't an 'investment'," I said. "It's our home. That's why we bought it. It's where we live. If you want an investment, you talk to Merrill Lynch."

Nine other people around the table looked at me as if I was crazy. Migawd, what a stupid person not to look upon every event of life as a money-making opportunity!

[expatriot]

43. agreed, it is a "quality of life" investvent

First and foremost it is your home that you invest in in order to reap a certain quality of life and peace of mind, domestic stability, security, etc. It is only secondly a financial investment and should only be seen as such as a product of your quality of life investment.

[demzilla]

36. Greenspan isn't the problem

The problem is ridiculously inflated housing prices pumped up by irresponsible interest-only loans, which is the only way most people can even afford to get into the housing game. On the Suze Orman Show tonight, she reported that 62% of all loans taken out in California during the first two months of this year were interest-only, compared to just 2% in 2002.

In a few years, when those loans convert to then-prevailing interest rates, no doubt higher than today's, people will find themselves with vastly increased mortgage payments and no equity in their homes to show for their efforts -- unless home prices continue to rise, which they won't, and which already show signs of flattening out in some areas.

Combine this with the effects of peak oil, gas demand outstripping supply, rising gas prices that ultimately have a ripple effect on the economy making everything more expensive, and you have the perfect storm: housing prices fall, interest rates rise, buyers struggling with other economic issues less inclined to buy, sellers stuck with white elephants in which they have no equity. Recession -- even depression -- here we come.

Let me add that the rapid and ridiculous inflation of housing prices, while benfitting any number of people, including myself, is something of a national shame. It used to be in this country that a young couple could afford a house without having to take risky loans that leave them completely vulnerable to prevailing economic winds. Now the dream of home ownership is increasingly out of reach in many parts of the country, and that makes the American Dream that much more elusive.

[JDPriestly]

40. The Californians with interest only debts

actually aren't quite as stupid as you might think. If they can't pay when interest rates go up and provided the house is a single up to a fourplex and is lived in by the buyer, they simply walk away. The bank loses the money paid to the seller that sold the house to the buyer with the no interest loan.

That is because California has anti-deficiency laws that were established in the Depression. The foreclosing bank (or other person who gave the loan) gets the house but can't get the rest of the money loaned. The buyers who are paying interest only are essentially paying rent. It is as if they were paying for the house with an option to buy.

Think of it. Let's say you buy a house for $500,000 (which will be a pretty ordinary house right now) and you pay interest at six percent. You actually pay $30,000 or about $2,500 per month rent. That's a lot of money to pay for rent, but I spoke to a woman who is renting a crummy one-bedroom for $700 per month for herself and several children, so at least the person paying $2,500 per month is getting enough room to live on, and they get the chance to gamble on buying the house later.

Also, if housing prices go down, the buyer may be able to renegotiate the loan and price with the lender. So, it's a gambler's game and prices are bound to go down, but people aren't being as stupid as you might think. After all, they have to have a place to live.

[expatriot]

37. What makes a home valuable?

You said
"Greenspan is bound and determined to take out the Housing Industry the place Americans have their wealth!!!

I can't wait till he retires!!!"


You are being sarcastic, right?

[expatriot]

38. housing speculation is a grand delusion....

people have poured their savings into real estate, creating a false demand and short-term exponential increase in market value. This spectacular uptick in prices is fueled by cheap credit (that can't last forever, as warned by Greenspan) and tons of investment. People have invested in homes thinking that they will get this grand return in the future but ultimately, the price of homes will be determined by the resources people are willing and/or able to spend to acquire a place to live. In the end, homes have no utility beyond this. If people can't afford them, they will rent. If people are scared away by the risk, they will rent.

Here in Arizona (Yuma), the market is already cracking. Homes are staying on the market much longer than a month or two ago when they were only on the market for a few hours.

[demzilla]

41. Where in Arizona?

Here in Sedona and the Verde Valley, prices are remaining on the ridiculous side. I got a card in the mail today from a real estate agent who is trolling for places to sell and just sold a condo in eight days for $398 (!) per square foot. The condo in question is a smallish place sandwiched together with others, and with no red rock views. That condo sale may be at the top end in dollars per square foot, but the median home price in Sedona now exceeds that in San Diego County, California, which is one of the most inflated places in the country. You can't buy an old manufactured home here for less than $300,000. Outside Sedona, in Cottonwood, Cornville, and the rest of the Verde Valley, the median price is approaching $250,000. Ironically, the only part of the market that is slowing here is the luxury end, as sellers are now getting greedy and asking too much, according to local real estate people. I guess the rich know a bargain, or lack of one, when they see it.

P.S. Love the cat pictures -- are they deflecting or broadcasting?

[expatriot]

42. Yuma... the much touted "next Phoenix"

and I do not doubt our long-term growth potential, we are very well positioned with water-rights, etc. but people aren't thinking that bubbles inflate and pop in spite of long term growth. Look at Phoenix in the early seventies and then again in the early eighties.


on edit: now i am not saying prices have fallen yet... but properties are DEFINITELY staying on the market longer. That is for damn sure. And in that respect, I am sure the rate of increase has slowed significantly in the past month or two but of course I have no numbers to show for it so take it as the opinion of an anonymous discussion board contributor.

and about my cats... they are broadcasting.

[demzilla]

44. Ah, the broadcasting cats

-- that explains why I'm getting this sudden desire to drive to Yuma and feed your cats . . .

By the way, in Arizona it seems like a lot of places are turning Phoenix-like with growth and congestion. As to real estate prices here, I think statewide they're simply catching up with our pricier neighbors on the Pacific coast, with the same eventual consequences.

[teryang]

45. Musical chairs almost over

My social contemporaries are making their last move to cash in on the housing speculation. On paper they have done well in the last few years. Because their current income isn't good due to America's declining wages and declining opportunities for skilled middle class workers, they want to cash in their substantial equity now rather than wait, when they know they might lose it. Their equity represents their only "savings."

The solution? Bring back the kids. Move to the college town, get junior out of the dorm/apartment and bring them back into the homestead to lower housing costs.

Another solution, get a house in a rural area where they are allegedly inexpensive. Another ostensible solution, get a small condo.

How can you get a decent paying job in a small (college) town? Answer, how can I get a decent paying job here? Small condo prices are now approaching what average sized homes went for 30 months ago.

The truth is that the opportunity cost of selling your present residence in this market is prohibitive. Yeah, you have equity. But where are you going to be able to buy again once you have sold? It is probable that costs and debts will increase, not decrease, as a result.

Mortgages and a rentier class are prominent characteristics of economic regression. They are medieval in origin and retrograde.
Finance has replaced production as the mainstay of our current national economy. This is emblematic of the corruption of our political system and a serious national decline. This dirty little secret is not even mentioned in corporatist press.