Another term for Alan Greenspan

Federal Reserve Chairman Alan Greenspan helped create a stock market bubble in the late 1990s, as I suggested in The stock market bubble and the Federal Reserve. Many observers think he created other bubbles as well.

In The Bubbles Mr. Greenspan has Created!, Marc Faber calls the Fed chairman a "serial" bubble blower. He blames Greenspan for creating bubbles "all over the world - in stocks and bonds of emerging economies, the currencies of Australia, New Zealand and South Africa, in housing, and lastly in Chinese capital spending, which is now growing by more than 40% per annum, as well as in commodity prices".

That didn't stop President George Bush from nominating Greenspan to a fifth term as chairman. Paul Kasriel of The Northern Trust Company wrote in his daily commentary yesterday: "It is not surprising that Alan Greenspan was re-nominated to be chairman of the Federal Reserve. What was surprising is that he accepted the re-nomination."

Kasriel thinks that "[b]ecause the prices of goods and services are beginning to rise faster, Greenspan has no choice but to put up interest rates in an effort to slow the growth of central bank-sponsored credit. This runs the very real risk of bursting the housing bubble in the next two years. Why wouldn’t Greenspan leave this potential debacle to his successor to deal with? Why not go out on top of the world now? Does Greenspan’s pride goeth before his fall?"

In the short term, bubbles may cause inflation, but they eventually end in deflation. This sequence of events may already be unfolding. Even as prices of assets and commodities have risen all over the world, signs of oversupply are beginning to appear. In his post Soya Soya, Edward Hugh mentions that "cargoes of South American soyabeans are stranded at Chinese ports" and suggests that "the drop in prices is fairly generalised in commodities".

Kasriel may be wrong. Greenspan may not even have to wait two years for the bubble to burst.