A New Woodward Book?

The criticism of former Federal Reserve Chairman Alan Greenspan increases by the day - that probably has a lot to do with the fact that he keeps flapping his gums, telling anyone who will listen that things are going to turn out just fine.

He reportedly gets paid handsomely for this - nice work if you can get it.

The latest retort comes from Rachel Beck at the Associated Press who, in this story from last week, notes the poor track record of the man Bob Woodward called "Maestro".

Financial markets have to quit hanging on Alan Greenspan's every word. That's because the former Federal Reserve chairman's economic forecasting skills aren't always right.

A review of some important events in recent economic history - such as the dot-com implosion in 2000 or the 1990 recession - shows that Greenspan has had some big misses.

Two years ago, for example, he said that the jump in oil prices was a "transitory" factor boosting inflationary pressures. Crude oil was trading at $40 a barrel at that time; today, prices are around $60 a barrel, and that's down from a high topping $78 a barrel over the summer.

Of course, all economists get things wrong, but when others do, the entire financial world isn't listening.

Greenspan left the helm of Fed in January after an 18-year tenure, and now runs a consulting firm that bears his name. He has continued voicing his views on the economy, and while they don't offer direct insight into the Fed's monetary policies, his comments still carry weight.

That's why so much attention has been paid to his recent upbeat assessment of the economy. Greenspan told attendees Monday at an economic conference that the "worst is behind us" in the economic impact of the housing slump. He also said strong profit margins and capital spending are good signs of what's potentially to come.

"The economy is obviously going through a significant slowing period, which as best I can tell is more than likely temporary," Greenspan said during a question and answer session at the annual Charles Schwab Impact conference in Washington.

Current Fed Chairman Ben Bernanke must love hearing reports like this - the calming tone of words like "as best I can tell" and "more than likely temporary" is classic Greenspeak.

Formulating the nation's monetary policy must be hard enough given the mess that was left behind, but to have the master bubble-blower hanging around the football field, yelling from behind the fence like a senior who graduated last year and just misses the game so - this must be annoying for the new quarteback.

Not more than a month or so ago, the former Fed chair's comments were misinterpreted as a forecast for the future path of short-term interest rates in the U.S.

He's probably just trying to help, but hasn't he already done enough?

Why should anyone listen to him anyway?

But before anyone hangs their hopes on Greenspan's predictions that better times could be ahead, the economics team at Merrill Lynch took note of some of his forecasting fumbles from the past.

Greenspan told his Fed colleagues on the Aug. 21, 1990, Federal Open Market Committee meeting, where interest rate policy is set, that a recession wasn't likely in the cards.

"I think there are several things we can stipulate with some degree of certainty; namely, that those who argue that we are already in a recession I think are reasonably certain to be wrong ... ," Greenspan said.

But as Merrill chief North American economist David Rosenberg notes, it would later be known that the recession had started in July of that year.

Then there was a March 6, 2000 speech, which came just as the unprecedented bull market was peaking. Greenspan said the fact that "the capital spending boom is still going strong indicates that businesses continue to find a wide array of potential high rate-of-return, productivity-enhancing investments. And I see nothing to suggest that these opportunities will peter out any time soon."

"But peter out they did," Rosenberg said in a note to clients. "Tech capex went from a 20 percent year-on-year growth rate at the time of the speech to zero a year later; the Nasdaq (composite index) collapsed by 60 percent."

It's too soon to tell if Greenspan is getting it right or wrong this time around. But it's pretty clear his rosy outlook is not shared by executives of homebuilders.
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A year from now, maybe things will really be looking up, and Greenspan's view eventually will be correct. But from the way things seem now, betting on Greenspan's outlook would be risky.

With Bob Woodward's recent penchant for revisiting past subjects in a later, much more critical light, he might want to take a drive around the greater Washington D.C. area, noting all the For Sale signs, then have another chat with the retired Fed chairman.

Maybe interviewing a few of the home sellers would be helpful, to see if per chance any of them took the now famous advice from the former central banker to add an adjustable rate loan to their debt load back in 2003 - loans that are now resetting to much higher rates.

Maybe Mr. Woodward could come up with a new and different theme for a new book ... let's see, what might he call it?