New Greenspan interview – well worth reading

Greenspan’s interview in today’s Daily Telegraph can be read here. It’s pretty bearish on the problems in the financial markets (and he thinks the problems will be greater in the UK than in the US, thanks to the number of variable rate loans), and also on the prospects for long term inflation, which could stabilise around 5%. Putting aside the issue of who created many of the problems in the first place, and we’ve pointed the finger in his direction several times before on these pages, he could well be right on both counts. Ambrose Evans-Pritchard, in an adjacent column to this interview in the print edition of today’s Telegraph, does an excellent job of dismantling the Greenspan myth. He quotes from Greenspan’s 1966 paper Gold and Economic Freedom: “The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in breaking the boom. But it was too late: by 1929 the speculative imbalances had become overwhelming.”