Greenspan has said(dont have link) that fed only influences short term interest rates and thus didnt cause long term interest rates to fall which could create a housing bubble. How does this fit into Austrian Economics?
I think the short answer is that he’s full of it.
Although he did say some nice surprising things the other day like “The Fed is a beast of the Congress”, and he almost explicitly blamed Congress for the housing crisis.
Why wouldn’t he? They deserve some blame to be sure, but if interest rates were at a more natural rate (i.e. higher) there wouldn’t have been so much speculation.
They represent the legislative body of the government. They make the laws. The power to manipulate interest rates in the first place is granted by them and only them. The Central bank is just a tool. If you blame the Fed, you must blame Congress. To seek to abolish the Fed and leave Congress intact is to accomplish nothing.
He is simply trying to confuse the media who always fail to follow up as they swoon over Greenspan because he provides their beloved government all the money to spend through debt and inflation. He has a grain of truth that the Fed does not have direct control over long term rates. But it does have indirect influence over long term rates as banks lend money from the Fed on short terms to make their reserve requirements. If banks speculate that the Fed will not raise short term rates then banks will charge lower interest on long term rates as they feel that they will be able to loan at cheap rates to meet their future reserve requirements.
I’m not so sure about that. In the absence of the fed there would be no central bank dictating interest rates. Congress deserves blame for essentially contracting out a delegated power, but they didn’t dictate interest rates.
That’s their prerogative - to sort of dictate interest rates. Unless you support the prerogative but simply object to how it was carried out, then It simply makes no sense to somehow separate the two and apply to them different degrees of blame. It’s like blaming the military and not Congress for killing Iraqis. If you support the war, then that would make sense, but if you oppose it, what good is it to blame the military?
Don’t misunderstand me. I agree that the Fed and its operation should be revealed and discussed. But in the context of the bigger picture - The evils of government, and not just in the context of the evils of the Fed. The Fed is no more evil then the government run post office. One was simply granted more power to cause much more damage. Do you really believe that the people working for the Fed are any different then the clerk at the post office?
First of all, I do oppose the war and blame the military for the deaths. Congress deserves blame too, but you sound as if you’re absolving the military and the fed. It’s akin to absolving a hit man for killing someone and putting all of the blame on the person that hired him.
Secondly, the original point of this thread was about how Alan Greenspan is absolving himself from blame. That is asinine, but it appears to me you agree with him that he doesn’t deserve any credit.
It would make no sense to blame the hit man any more then the person that hired him.
If you want to despise him for taking such a job, that’s one thing. I certainly do. To argue over the ethics of holding such posts is a different subject.
But no, Alan Greenspan per se is not at fault. It’s the position that he filled. It’s the entire system. Blaming Greenspan is blaming a scapegoat. It would not make any difference if it was somebody else in that seat. Even a monkey,. would you blame a monkey?
It’s one thing to blame Greenspan in a sort of figurative way, meaning that it is the task itself which happened to be filled by Greenspan. But if you are blaming Greenspan’s personal conduct as how he carried out his job, then you are basically not rejecting the system of planning itself, but simply rejecting the planner.
Technically, what Greenspan says is true. The Fed Funds rate, which is the main interest rate which the Fed attempts to control, is a short-term interest rate.
The problem is that when the Fed lowers the Fed Funds rate, then it expands the supply of credit. This expansion of credit is longer-term phenomenon, which has an effect on the interest rates at which businesses borrow from banks.
Here Peter Schiff says what makes sense to me, that long term interest rates are determined by what people anticipate inflation will be.
So that if the Fed lowers interest rates now, it’s done by printing more money, which leads to inflation. Since people know that, the Fed does influence long term interest rates.
A layman’s way of saying what you did, I think.
This is because he’s a lying scum bag. The federal funds rate (over-night loans) and other short-term debt instruments effect all other interest rates, either directly or indirectly. Also, directly controlling short-term interest rates means that the FED directly manipulates the slope of the yield curve (banks borrow short and lend long). The ability to control the monetary base (high-powered money) of the worlds reserve currency makes the FED the most powerful institution on Earth, and all of Mr. Greenspan’s lies can’t change this fact.