Greenspan puts out warning about deficits. (For the umpteenth time)

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Greenspan puts out warning about deficits
Fed Chairman believes nation's long-term economic stability is threatened

A day of reckoning will come, Greenspan warned, because there is no "free lunch."

Friday, May 07, 2004
By Martin Crutsinger, Associated Press


WASHINGTON -- Huge federal budget deficits threaten the nation's long-term economic stability, Federal Reserve Chairman Alan Greenspan said Thursday as he raised new concerns about impending financing problems in Social Security and Medicare.


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"Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability because the budget deficit is not readily subject to correction by market forces that stabilize other imbalances," Greenspan said.


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Posing the question of whether something has fundamentally changed that would allow the country to "disregard all the time-tested criteria of imbalance and economic danger," Greenspan said, "Regrettably, the answer is no. The free lunch has still to be invented."


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Noting that some economists have worried that the Fed's extended period of low interest rates has spawned a housing bubble of inflated home prices, Greenspan said any "misalignment" of home prices probably would be dealt with by "a softening in housing markets" as interest rates rise.




more.....


http://www.oaklandtribune.com/Stories/0,1413,82%257E10834%257E2133330,00.html

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1. yes.... but he fully backed the tax cuts that CAUSED the deficits ....

but i think this is a good sign that greenspan thinks kerry might win.

he's setting the stage for not letting anything get spent on democratic programs.

if shrub wins, he'll go back to backing more tax cuts.

[Lefty48197]

6. I don't think Greenspan ever did support Bush's tax cuts

He said something like, "I'm not completely convinced that the proposed tax cuts will completely destroy the economy". The right wingers, and their media friends spun his words and splashed headlines all across the country that said things like, "Greenspan endorses Bush tax plan".

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2. his comment on a 'softening' in the housing market is spot on.

people keep saying that there's a bubble in the housing market. there isn't, at least not directly. people are paying perfectly rational prices given the artificially low interest rates.

the bubble is in fed funds. the housing market will merely be a downstream casualty when greenspan finally lets the air out of the fed funds bubble, to mix metaphors.

[rapier]

5. notes

The Fed Funds rate has nothing to do with mortgage rates. OK, well it does affect the first year of an ARM's. Mortgage rates are based on the 10 year Treasury which has gone from 3.6% to 4.77% over the last several weeks. the 30 year mortgage rate is now 6.1%, up .75 percent in those six weeks

While it is true that there is a 'rational' aspect to home buying because of the low interest rates that is tangetal to the real reason for the housing mania, INFLATION. Home prices have been inflating and people continue to think they will inflate, and make them finacially secure.

In many areas of the country the most rational thing to do is to rent. You think that is nuts I suppose. Then go out and see what you can rent a single family home for and compare that to what the mortgage/tax/insurance is on that home. You'll soon find out that renting is cheaper.

But but but you'll say, "I'll lose out on the home appreciating." That makes my case. Your assuming continued housing inflation.

It is now safe to assume that the 22 year trend to lower interest rates is over. This has been the invisible driving force behind the bull market in all financial assets, and real estate. If I am right that interest rates are going to trend higher for YEARS thet means that the chances of stocks and other financial assets rising faster than general inflation are near zero.


As to Greenspans warning about deficits. That is simply ass covering. He invited the return to deficits. He wanted them. He needed them. IN any case they were inevitable as the Clinton surplus was a short term phnomenon fated to end. The suddeness and degree of their disappearance was perhaps a bit surprising but there again it was Greenspans green light on the tax cuts which made it possible.

On of the most amazing bits of BS ever spoken in congress was Greenman's Jan 01 testimony fretting about the SURPLUS and the need to cut taxes. Only a total fool believed that the surplus was permanent. You can bet Greeny knew they were comming to an end on their own, without the cuts.


Fiscal policy is a small part of our predicament now.

[ozymandius]

3. This is window dressing.

Greenspan is correct to say that a day of reckoning will come and there is no free lunch. By window dressing - I mean that he is pushing Bush in front of a bus as the person responsible for reprehensible fiscal policy. Greenspan practices bubble stewardship of our economy. He has stood at the helm of our central bank through finance bubbles, stock market bubbles, real estate bubbles, currency bubbles, etc. The man has never seen a bubble he does not like.

Now that we see what trouble brews for Fannie Mae and Freddie Mac, Greenspan will not take the blame for their drunken, irresponsible behavior. Should economic calamity befall us, there's either a person and/or an institution waiting in line for Greenspan's derision. Most conveniently, Bush will take the hit as an elected official.

I suspect the Greenspan is just hoping to hold out that long, supposing Bush reappoints him as Fed chairman in June.

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4. Not sure, but I don't think he can serve a full 4 year term as Chairman.

I think his 14 year full term is over in Feb 2006 (He was appointed to it in Feb 1992).

He didn't much liked the bubble in the late 90's, and I think his "irrational exuberance" speech understated what he was really feeling. He was deeply worried.