The suite has shown that Greenspan was wrong

The circles I frequent my trips are an almost unanimously to a fact: the U.S. monetary authorities made three serious errors, which have contributed to the financial crisis, and then have aggravated it. This consensus is almost always corroborated by statements that the Presidents of the Federal Reserve have served the United States, since the mandate of Paul Volcker while at least. The consensus however is the fact that U.S. decision-makers erred in deciding to circumvent regulation based on principles, thus allowing the sector shadow banking to grow by a certain leverage effect and compensatory scenarios; When the Fed and Treasury have chosen, once the trouble had started, to nationalize AIG and to pay its bills, rather than support for counterparties; and, finally, when the Fed and the Treasury have taken the risk to let Lehman Brothers bankruptcy in an uncontrolled manner in an attempt to teach the financiers that have poorly capitalized consideration is not without risk. A very lively debate remains however about a fourth possible error: the decision of Alan Greenspan, in 2001-2004, to lower the nominal interest rates on U.S. Treasury securities and keep low, to try to approach full employment. In other words, should Greenspan have keep interest rates higher and cause a recession to avoid the formation of a housing bubble If we do inflate the interest rates, Greenspan said, millions of Americans will lose their jobs, which makes service to anyone. If interest rates fall, these few extra workers could build houses and to ensure to sell to people whose income is derived from the building. Full employment, it is better that a high rate of unemployment if it succeeds without inflation, he also thought. In bubble, and if it not deflates but erupts, threatening thus to create a depression, the Fed will have the necessary tools to short-circuit the process. The suite has shown that Greenspan was wrong. But the question is: was the bet of Greenspan recipient When, in the future, the United States will find themselves in a situation similar to that of 2003, should endeavour to maintain full employment at the risk of provoking a bubble This is that I know very well what to think. The experts of central banks admit for a long time that it is imprudent to lower rates to full employment if the inflationary spiral is be one of the consequences. At times, I think that in the future these experts should also admit that it is imprudent to lower the rate of interest for full employment when this action is likely to lead to asset price bubble. At other times, I think that even with the additional information we have on the structure of the economy, the decisions that Greenspan was made between 2001-2004 were cautious and were acceptable and beneficial bet.

What I know is that the question is not raised. "Most argue that Greenspan has the Fed below their natural barrier". But that is the natural barrier In the 1920s, the Swedish economist Knut Wicksell defines the natural interest rate as the rate at which, for the economy, investment desired is equivalent to the savings desired, without causing price increases consumption, resources or wages since the aggregate demand exceeds reserve; Neither of these price drops since the reserve exceeds the demand. According the definition of Wicksell, monetary interest rate was, in fact, over the natural early 2000 interest rate: this is deflation looming and runaway inflation. The natural interest rate was low because, as explained at the time the current Fed Chairman, Ben Bernanke, the planet was suffering from a global savings glut. Of course, the Greenspan policy in the early 2000s was wrong. Nevertheless, it is impossible to argue that he has practiced a policy of aggressive tightening of interest rates.