I don't believe inflation can be accurately measured. That's a fool's errand for a Soviet bureaucrat, not a free American.
February 2000
PAUL: Good morning, Mr. Greenspan. I see you have stayed on the job in spite of my friendly advice last fall. At least you remember the days of sound money, even if it’s only nostalgia, so I’m pleased to have you here.
We have talked a lot about prices today, but for the sound money economist the money supply is the critical issue. If you increase the supply, you create inflation.
If we aim at a stable price level, we’re making a mistake. Technology and other factors can keep prices contained, but if you’re increasing the money supply we still have malinvestment, excessive debt and borrowing.
Someone mentioned that the Fed might be too tight with money. I disagree. The last quarter of 1999 might be historic highs for an increase in Fed credit. Over the last three years the Fed has not once been in the target range for M3. You went over it, in fact, by $690 billion. Everyone likes it now because the bubble is still growing. But what happens when it bursts? Can you reassure me it won’t? Will M3 shrink?
GREENSPAN: Let me assure you we believe in sound money. We believe if you have a debased currency you will have a debased economy. As I’ve said earlier, the difficulty is defining what money truly is. We have been unable to define a monetary aggregate that will give us a reliable forecast for the economy. Until we find a reliable “M” we will go light on the use of monetary aggregates for monetary policy purposes.
PAUL: So it’s hard to manage something you can’t define.
GREENSPAN: It’s impossible to manage something you cannot define.
That's amazing. Is it actual Fed policy?