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Or you could have just listened to me 2 years ago...
Well isn't this just wonderful.
Federal Reserve Chairman Alan Greenspan finally acknowledged the obvious at a recent Senate Budget Committee hearing.
His support in 2001 of the president's record-high tax-cut package, when the country had budget surpluses, encouraged Congress to adopt tax policies that have resulted in record-high deficits.
"I was wrong, like everybody else on the issue of surpluses," Greenspan said. He also said he has no doubt that tax increases would be part of any bipartisan deficit-reduction solution.
To be fair, Greenspan did caution in 2001 against "imprudent fiscal policies" and said in his January 2001 testimony to Congress that there was a "considerable danger of overdoing it." Congress chose to ignore that part.
When George W. Bush took office, he inherited a budget surplus of more than $128 billion. Then came the record tax cut packages of 2001, 2002 and 2003, worth $1.8 trillion over 10 years.
A March-November 2001 economic recession ended a record-setting economic expansion that began in 1991. The wars in Afghanistan and Iraq have cost $300 billion, with costs expected to rise to $646 billion (though Bush administration officials expected the war to cost no more than $50 billion — $60 billion total). Yet neither the president nor Congress has asked the American people to make sacrifices; instead, they're letting red ink flow.
The result has been predictable. One year into Bush's tenure, the budget went from surplus to a deficit of $158 billion. In 2003, the deficit reached $378 billion, a record high in American history. In 2004, that record was shattered with a deficit of $412billion. This year's deficit is expected to shatter the record again, coming in at an estimated $427billion.
These deficits are being paid for with borrowing — so the national debt also has hit record highs. Yet Congress is considering making the Bush tax cuts permanent. That's fiscal madness. Now is the time to bring back the budget discipline of the 1990s — where tax cuts and spending increases were reined in by requiring offsets.
The current "borrow and spend" philosophy courts financial disaster. Greenspan's belated injection of reality should lead Congress and the president to reverse course.
Woody Back, Start hiding you money!!!!
Or you could have just listened to me 2 years ago...
Worst Fed Chairman ever.
Worst free-spending Congress/President combo ever.
Whoa... settle down there sparky... lest we forget Arthur Burns and G. William Miller. Miller wasn't even an Economist, he was a lawyer, and was eventually "promoted" to Secretary of Treasury just to get him out of control of the Fed.
Early Volcker (79-82) wasn't too hot either... the Fed then experimented with a Monetarist approach, where they sought to control monetary aggregates rather than interest rates. They failed to get a firm grasp of money supply, interest rates experienced wild swing, and the experiment was a failure. Friedman and Meltzer (perhaps the two famous Monetarists of all time) rushed to point out that it wasn't Monetarist theory that failed, but the people attempting to apply it. Volcker eventually got his together, though.
Here is a decent history of the Fed in regards to its chairpersons:
http://elsa.berkeley.edu/~cromer/draftpost.pdf
Bingo... I'd say Greenspan has done a good job considering the fiscal nutjobs he has to work with. In Greenspan's era, monetary policy has been as much about mitigating the effects of poor fiscal policy as it has been about maintaining a steady level of inflation and unemployment (assuming a long-run Phillips relation).
I hope your right Scott, but if our debt load comes back in bites us in the arse, I think more people will tend agree with my assessment. Mostly because people have short memories.Bingo... I'd say Greenspan has done a good job considering the fiscal nutjobs he has to work with. In Greenspan's era, monetary policy has been as much about mitigating the effects of poor fiscal policy as it has been about maintaining a steady level of inflation and unemployment (assuming a long-run Phillips relation).
I believe there is little doubt the debt load will "come back to bite us in the ass." It has already begun as we watch inflation numbers slowly creep up to the levels myself and many (more accomplished) economists predicted a few years ago as opposed to the short-sighted optimists (traders) who still think we'll see inflation come in at 2.4% this year.
However, the Fed Chairman has zero control over fiscal policy. Greenspan was put in the position of having to contend with a recession (which, with a little algebra we define as unemployment above the natural rate) while Bush was wrecklessly mortgaging away the country's long-term monetary stability. As these are forces that naturally pull in opposite directions monetarily, Greenspan could only fight against one (and at the time he began fighting recession, Bush had yet to totally screw up the fiscal side of the coin), and that one was recession. His accomidating policy did a good job at jump starting the economy, except coupled with Bush's fiscal policy we now see a little "overheating" going on.
In hindsight, the right policy would have been to be less accomidating (assuming Bush would have pushed his policy through regardless), but hindsight is 20/20.
Fed typically targets its fed funds rate at 200-300 bp over inflation, so there is no doubt we will be seeing rate hikes through the rest of 2005 and probably into 2006.
I should also note I am a proponent of tax-cuts so long as they occur under a pay-go type system. A balanced budget should be a cons utional requirment, IMO. If you ask me, more irresponsible than Bush's tax cuts have been his spending.
Exactly, but some would say Greenspan held interest rates to low for to long. Clinton and Greenspan worked together to curb inflation while still keeping a rates at a favorable rate for borrowers. The appropriate action by Greenspan should have been to mitigated the effects of W's taxes cuts with faster rate increases, which didn't happen. Now we are under the gun of stagflation if we don't act diligently enough.In hindsight, the right policy would have been to be less accomidating (assuming Bush would have pushed his policy through regardless), but hindsight is 20/20.
I think the threat of the "stag" is overblown.
Nothing wrong with tax cuts as long as we can afford them.. For instance, when Clinton lowered taxes during his second year, we could afford them, but with trillions of dollars sitting on the sidelines after the NASDAQ and DOW technology busts already waiting for the next big thing, there was little need to inject more money into the economy. This is why the tax cuts have had a minimal effect on real growth of the economy. (Well, besides make many of the real rich even richer) What's driving the real growth in the economy we have now is the housing boom behind the low-interest rate catalyst, but these don't last forever.I should also note I am a proponent of tax-cuts so long as they occur under a pay-go type system.
Last edited by Nbadan; 04-28-2005 at 01:52 AM.
Not if the Asians start calling in their loans. Everytime a Republican says that the bonds and securities n the SS trust fund are worthless IOU's they are admitting that we have no intention of ever paying back these loans.I think the threat of the "stag" is overblown.
Ever notice how Nbadan's outlook always depends on the negative "ifs." Oh, and the bonds and securities in the Social Security trust fund are worthless IOU's given the demographics of the upcoming contributor to recipient ratio.
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