Geenspan Comments


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Yes, in case you thought the former Chairman understood monetary operations and reserve accounting

>   
>   (email exchange)
>   
>    On Fri, Oct 9, 2009 at 3:15 PM, Roger wrote:
>   
>   You can’t make up stuff like this! Reuters: Greenspan
>   says Fed balance sheet an inflation risk “You cannot
>    afford to get behind the curve on reining in this extraordinary
>    amount of liquidity because that will create an enormous
>    inflation down the road,” Greenspan said at a forum hosted by
>    The Atlantic magazine, the Aspen Institute and the Newseum.
>   

Greenspan says Fed balance sheet an inflation risk

Oct. 2 (Reuters) — Former Federal Reserve Chairman Alan Greenspan said on Friday that the Fed risks igniting a burst of inflation if it does not withdraw its extensive support for the economy at the right moment.

“You cannot afford to get behind the curve on reining in this extraordinary amount of liquidity because that will create an enormous inflation down the road,” Greenspan said at a forum hosted by The Atlantic magazine, the Aspen Institute and the Newseum.

In its battle against the worst financial crisis in 70 years, the Fed has chopped interest rates to zero and flooded the financial system with hundreds of billions of dollars in the process. In so doing, it has more than doubled the size of its balance sheet to over $2 trillion.

The Fed has said that with high unemployment and a record level of factory idleness, none of the pressures that would ignite inflation is on the horizon. A government report on Friday that showed a weaker-than-expected job market in September is likely to provide additional support for that view.

Greenspan said the economy is “undergoing a disinflationary process,” and stressed that the Fed faces no urgent need at the moment to unwind its monetary stimulus.

Still, his comments echo concerns raised by some policymakers who worry that delays in shrinking the Fed’s bloated balance sheet will tempt fate and recommend action sooner rather than later.

“It’s critically important the Fed’s doubling of its balance sheet be reversed,” Greenspan said. “If you allow it to sit and fester, it would create a serious problem.

Greenspan chaired the Fed from 1987 until his retirement in 2006. Hailed by many as a sage during his Fed tenure for a long period of prosperity, his legacy has been called into question over the long period of ultra-low interest rates and the Fed’s hands-off approach to overseeing the financial industry before the global economic crisis.

(Reporting by Mark Felsenthal; Editing by Kenneth Barry)


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Godley letter to FT


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Thanks, will distribute and post on my blog.

Known Wynne for quite a while.

He’s been doing sector analysis for maybe 50 years and has often been the UK’s top forecaster because of it.


Immediate cuts to budget deficit will worsen recession

Oct. 9 (FT) — Sir, George Osborne is committing himself unconditionally to making very large cuts in the budget deficit. I think he may be very seriously mistaken.

If these cuts were all to be made immediately he would obviously make the present recession very much worse than it already is.

To make sense of his proposed cuts it must be assumed that there is a rise in private expenditure relative to income (ie, a fall in net private saving) that roughly matches them in both scale and timing. But it is quite likely that private saving will not fall nearly enough. If, as I foresee, it does not do so, then Mr Osborne’s cuts will be much too large.

Wynne Godley,
King’s College,
Cambridge University, UK


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