Wikinvest Wire

A 92-year old finger pointed squarely at the Fed

Sunday, January 13, 2008

Geez, the next thing you know, Milton Friedman is going to rise from the grave to condemn former Fed Chairman Alan Greenspan. In this report from the Telegraph U.K., Ambrose Evans Pritchards explains:

As rebukes go in the close-knit world of central banking, few hurt as much as the scathing indictment of US Federal Reserve policy by Professor Anna Schwartz.

The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.

"They need to speak frankly to the market and acknowledge how bad the problems are, and acknowledge their own failures in letting this happen. This is what is needed to restore confidence," she told The Sunday Telegraph. "There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for," she says.
According to Schwartz the original sin of the Bernanke-Greenspan Fed was to hold rates at 1 per cent from 2003 to June 2004, long after the dotcom bubble was over. "It is clear that monetary policy was too accommodative. Rates of 1 per cent were bound to encourage all kinds of risky behaviour," says Schwartz.

She is scornful of Greenspan's campaign to clear his name by blaming the bubble on an Asian saving glut, which purportedly created stimulus beyond the control of the Fed by driving down global bond rates. "This attempt to exculpate himself is not convincing. The Fed failed to confront something that was evident. It can't be blamed on global events," she says.
"We were powerless ... powerless I tell you, in the face of a savings glut as millions and millions of low cost laborers entered the work force after the fall of Communism".


This week's cartoon from The Economist:

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PlantFruitTreesToday said...

It seems to be all the rage lately to write,
Best if used by, Blah blah blah on the front of the dollar bills.

At least where I live in California, I've seen several of these now.

They say something like,
"Best if used by April 2008."
or "
"Best if used by August 2008"

Is anyone else seeing these yet?

Tim said...

That's hilarious - haven't seen any yet but will keep my eye out.


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