Posted on 01/08/2005 9:30:30 PM PST by steve86
World On Brink Of Ruin
NEW YORK - Alan Greenspan, that Matador of the Money Supply, the esteemed Impresario of Interest Rates, has suffered precious few slings or arrows over his many years as chairman of the Federal Reserve. Even the White House has had to offer its critiques off the record for fear of roiling the markets or upsetting the chairman's Elvis-in-Vegas-like following. So when the chief economist of one of the world's most prestigious banks calls Greenspan a bum, that's a big deal.
And yesterday it happened. Stephen Roach, the chief economist for Morgan Stanley & Co. (nyse: MWD - news - people ), one of the most powerful investment banks and one of the 50 largest companies in the world, says Greenspan has "driven the world to the economic brink."
Writing in an upcoming issue of Foreign Policy, Roach says that when Greenspan steps down as chairman of the Federal Reserve next year, he will leave behind a record foreign deficit and a generation of Americans with little savings and mountains of debt. Americans, Roach says, are far too dependent on the value of their assets, especially their homes, rather than on income-based savings; they are running a huge current-account deficit; and much of the resulting debt is now held by foreign countries, especially in Asia, which permits low interest rates and entices Americans into more debt.
The "economic brink" line is from the headline of a press release sent by Foreign Policy. In an interview this morning, Roach said, "That's a little extreme." He does admit the nation has prospered on Greenspan's watch. Still, he does not disavow the haymakers he directs at the chairman's chin.
"This is no way to run the global economy," Roach says. So far, the Fed has bucked the odds, Roach adds. But the longer the situation exists, the more chance there is that it will spell danger for the United States and the world.
Roach lays the blame for the peril at Greenspan's door. But first he takes out after his outsized reputation. Greenspan is not responsible for defeating inflation in the 1980s; Paul Volcker, his "tough and courageous predecessor," deserves more of the credit, Roach says. Greenspan's monetary policy deserves some accolades for the 1990s boom, but former President Bill Clinton's fiscal policy and other factors were equally responsible, Roach says. Greenspan may deserve some praise for softening the recession that followed the stock market meltdown, Roach concedes, but the chairman's cure may result in "bigger problems down the road" and "the biggest bubble of all: residential property."
Many have credited Greenspan with saving the world following the 1997-98 Asian financial crisis. Time magazine went so far as to put the gnome of Constitution Avenue on its cover, under the headline "Committee to Save the World." Though it is the case that the world did not end, "In truth, the world weathered the Asian financial storm only to chart increasingly dangerous waters in the years that followed," Roach writes. "Global economic imbalances have intensified dramatically since 1999."
A good chunk of the U.S. prosperity is owed to these imbalances, Roach says: "Asian countries holding enormous stocks of U.S. dollars recycle this cash back into the United States by buying U.S. [Treasury bills]. This process effectively subsidizes U.S. interest rates, thus propping up U.S. asset markets and enticing American consumers into even more debt. Awash in newfound purchasing power, Americans then turn around and buy everything from Chinese-made DVD players to Japanese cars."
While the economist has nothing against DVD players, he does say, "Asia and Europe are increasingly dependent on overly indebted U.S. consumers, while those consumers are increasingly dependent on Asia's interest-rate subsidy. The longer these imbalances persist, the greater the likelihood of a sharp adjustment. A safer world? Not on your life."
Roach even questions Greenspan's political independence. He does not claim the chairman is a partisan Republican, but he does fault him for being a "cheerleader for policies such as tax cuts...that could make the endgame all the more treacherous."
Greenspan is to central banking what J. Edgar Hoover was to fighting crime. He will soon surpass the fondly forgotten William McChesney Martin as the longest-serving Fed chairman. But his term as a member of the Federal Reserve Board of Governors expires in just over a year from now, and America will have to do without. Roach says, "Greenspan will be a tough act to follow." But the difficulty may not be living up to the chairman's reputation so much as cleaning up his mess.
And your point is what?
Boo!
Greenspan didn't do it, Morgan Stanley, the other banks, and the politicians did it. They're all culpable in the fiat money scam.
I've been hearing since the 1980's about our unsustainable trade and budget deficits. If our economic relations with these countries followed classic international trading rules, the dollar would have dropped sufficiently a long time ago and the trade balances would have corrected and the budget deficit also (as US exports increased).
Thsi hasn't happened (most of the current drop has been against the Euro). Now it has been argued that this is due to currency manipulation designed to help exports by the East Asians. Perhaps. But how can this have gone on for so so long unless the hypothesis about the trading relationship is incorrect?
It appears to me that our economies function much more like one integrated economy than as several independent ones, in which case the current situation will correct slowly over time as demand grows in East Asia, forcing the price of goods up.
***It appears to me that our economies function much more like one integrated economy than as several independent ones, in which case the current situation will correct slowly over time as demand grows in East Asia, forcing the price of goods up.***
You're exactly right. It's happening in India. The company I work for (engineering corp.) has outsourced to India, and the cost of labor was rising 120-180% annually over the past 8 years. Then India started outsourcing OUR work to China. Let's just say we put an end to that when we discovered it. Cost of labor and goods from Asia will rise, as expected and as the world has seen so many times. Colonial America provided cheap labor and goods for Europe, then the slave South did the same for the North, then Mexico, then Japan, India, now China. All these areas have developed over time, that's just the nature of economics.
Where's the problem? They loan us money, and we buy their products. If they stopped loaning us money and we got in trouble we'd have to stop buying their products and they would suffer. Sounds like a Mexican standoff.
We will be told over and over again during the next 4 years that we need "responsible" tax hikes and trade protection for the Democratic Party's big-labor contributors.
OK, you sound like you know what you are talking about, so here is my question: when will housing prices fall? Prices that is, for existing homes?
Thanks in advance for your reply, and I don't know is always an acceptable answer. But I will be a first time buyer and I am hesitant to jump in now, although where I live, in NJ (the most densly populated state in the nation) I probably can't do right or wrong, no matter what.
I have money in Morgan stanley, I had to roll it over to IRA when i lost my job and i didn't have a 401k to keep feeding on my new job. How can i get my money out of my IRA back into my 401k of my latest employer? I have not been impressed with my morgan stanley account as they just charge me more a month than i make in investments. Also the political crap morgan stanley plays i won't be feeding them anymore $.
This is the biggest crock of nothin' I have ever seen. Greenspan has nothing to do with the deficit, he has nothing to do with congressional policy, he has everything to do with maintaining orderly markets and taming inflation and unemployment. What a bunch of BS!
According to Factcheck.com, Roach supported Kerry's position of the dire economy given in Kerry's acceptance speech. With that being said, Mr. Roach lives in an unreal world. It's like he wants the doom and gloom. Wonder if we follow the money, where it will lead.
All you have to do is contact your 401(k) provider and get them to transfer your IRA assets into your 401(k). As is the norm, you will have a rep who put your 401(k) into place, took the commission and said ciao. But there will be a broker/dealer somewhere who is in charge. Just raise a little hell and it will get done.
Ok, But it is MY money and they can't complain about where i put it. Do i need to provide my 401k provider with account information? Thanks i appreciate it, I feel better already :)
Given Morgan Stanley's support of the Klinton Administration and their momentous dot.com scam, I wouldn't hire Mr. Roach to shovel the crap in my daddy's horse pasture. And from reading this article, the guy knows how to shovel it!!
That the sky is falling. LOL
I know your question is legitimate but listen, if someone really knew when housing prices will fall do you think they would tell you? Just like: if a stockbroker really knew what a stock will do why would he tell you just to make a commsission? Why wouldn't he just buy it for himself?
So everyone is going to stop working and just die of starvation all our natural rescources have dried up?
You have been playing monopoly too long!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.