According to the National Journal, President Bush's decision to back Alan Greenspan for another term as Federal Reserve Chairman is "no surprise."
But if it is "no surprise," why has there been "speculation" that the White House would rather see someone "in that powerful job that is more likely to support his economic policies"? Somebody or somebodies in the White House want it nosed about that it is "no surprise"--that Bush Administration economic policy is now and always has been run by adults. But if that were the case there would not have been a steel tariff. There would not have been that farm bill. And there would not have been the current incoherent set of budget proposals--it's a cyclical stimulus! no, it's a long-run growth program! it will boost the stock market and raise consumption! no, it will raise national saving and reduce consumption!
Greenspan does, after all, think that a deficit-widening tax cut is a bad idea right now. And if the White House thinks that somebody with Greenspan's views is the best person in the country to run the Federal Reserve, what does that mean that the White House thinks about the strength of its own arguments that what America really needs now is another big tax cut?
Elementary considerations of political consistency would seem to have called for delay of Greenspan support until after this year's reconcilation bill has passed: Republican legislators will ask over the next several months, "If this tax cut is so important and such a big deal, why isn't it important to have a Fed Chair who supports it?"
It seems that somebody or somebodies inside the White House, somebodies interested in presenting an image that economic policy is sober, responsible, and middle-of-the-road, has or have won an important internal political struggle.
Posted by DeLong at April 23, 2003 09:10 PM | TrackBackPresident Bush said today he supported the reappointment of Federal Reserve chairman Alan Greenspan, who he said had been doing a good job maintaining a "strong monetary policy."
The statement was no surprise, but the White House has been coy for months about the president's plans, prompting some speculation that he might try to install a person in that powerful job that is more likely to support his economic policies...
Its more likely that Karl Rove pointed out what a political disaster failure to reappoint Greenspan could be - it doesn't mean they think he's right. And if you're not going to replace him, better to end speculation at once.
Posted by: derrida derider on April 23, 2003 10:57 PMIts more likely that Karl Rove pointed out what a political disaster failure to reappoint Greenspan could be - it doesn't mean they think he's right. And if you're not going to replace him, better to end speculation at once.
Posted by: derrida derider on April 23, 2003 10:58 PMDeconstruct THIS!!
Go to the National Journal link for interview with BUSH ON HIS economic policy.
http://nationaljournal.com/about/njweekly/stories/2003/0423bush_interview.htm
Posted by: bakho on April 23, 2003 11:10 PMIt could be Bush reappointed Greenspan with the tacit agreement that Uncle Alan would say nice things about the Bush's proposed tax "reforms", or at least maintain neutrality and/or incomprehensibility. I predict the phrase "deficit-widening tax cuts" will never pass Greenspan's lips, and I think Greespan's new spin will be that while the economy is in recession, deficits in the defense of tax cuts are no vice, and higher taxes in the pursuit of government spending no virtue.
Posted by: roublen vesseau on April 23, 2003 11:21 PMWe are consistently mistaken to expect rationality from this WH. They don't need it, they've never been asked by any media to explain their 'rationale' for their economic plans. Few in the states actually cover it besides the WSJ. Fewer still actually understand what's at stake with the tax cuts. So we'll continue to muddle along with the miserable press we have and hope that some starlet undresses before the Budget writing committee in Congress. That's the only way you'll ever see decent coverage of it. They've all been bought and paid for lock stock and barrel. There's no need for 'deconstruction', the Crown has its reasons and that's that. No discussion, no debate. Just like the war, but more so, whith more blatant lies that will affect more people.
Posted by: VJ on April 24, 2003 12:29 AMAt this point, I wonder how Greenspan's approval of any proposed economic policy is still worth. I thought his reputation has been badly damaged, and thus his disapproval might not damage Bush's tax cut plans that much. Regardless, booting Greenspan would give the Democrats a very good issue for 2004, and they've avoided this. Also such a blatant violation of the Fed's independence would create a firestorm and scandal in the press. It also would probably inspire some big name resignations among economists associated with this administration who are still suspected of having some principles, like John Taylor or Greg Mankiw. When you compare the cost of keeping him on with the large cost of booting him, I think it's a no-brainer.
Posted by: Bobby on April 24, 2003 03:05 AMTiming probably matters in this case. Ignoring most short-term of timing concerns (all the hand-wringing over the poor man's prostate adjustment), the shift from war focus to economic focus in the White House is fully underway. They want to capitalize on Bush's approval ratings to pass economic policy and more broadly to seem compentent on the economy. Reappointing Greenspan well ahead of schedule is points scored. Don't be bowled over by a whisper campaign aimed at pointing out that Clinton (the great economy president) let Greenspan's appointment lapse for no good reason that anybody ever mentioned, but that Bush (with more reason to complain) dealt with reappointment as routine.
Bobby, I take your meaning about the perception, the accusation of blatant interference with the Fed if Bush had failed to nominate Greenspan, but it is up to the President to make this nomination. Nominating someone other than Greenspan would not be interference in any objective sense that I can think of.
Posted by: K Harris on April 24, 2003 05:12 AMOff hand, what does the Federal Reserve have to do with tax policy? I think you're making a much bigger issue out of that than should be made, for this reason, anyway.
Actually, I'm opposed to the reappointment for the same reason I opposed it the last time: it's bad for a democracy to become (or think it has become) so dependent upon on person for so long. As a libertarian, I respect Greenspan more than any government official that I can think of (at least at his level of influence), but I'm concerned about the impact of his departure when it finally does happen. It's better to inculcate the understanding that democratic government isn't about cults of personality.
Posted by: Scott on April 24, 2003 06:03 AMSo...
Prince Alan gets to keep his throne for several more years, and WE'RE supposed to snicker and feel like WE "won" one?
It's a joke--it MUST be a joke--it's gotta be a joke--it IS a joke. Right?
Question: Who loves the "strong" Dollar (and hates the Euro), Baby?
Answer: Certain conventionally "wise" ("Inflation is INHERENTLY evil! Growth is IMPERATIVE! EVERYTHING else is irrelevant!") macroeconomists, US Central bankers and THEIR bosses:
Hedge fund operators, Wall Street investment bankers, securities dealers, AND THEIR bosses--
Those ruggedly individulaistic, "dissent is tatamount to treason" everlovingly authoritarian devotees of the Slash and Burn (Washington/Wall Street) Branch of the Cult of the Ultra-rich.
THAT'S Who....
"...Using currency to wage economic warfare against the US "has been talked about, off and on, since the Arab oil embargo in the 1970s", said Robert Lynch, senior currency strategist in the New York office of BNP Paribas.
"It is mostly a threat" rather than a real possibility, Mr Lynch said, because switching from dollars could economically harm many Muslim countries that already hold lots of US dollars - notably Saudi Arabia. Still, given the level of Muslim anger directed at the US following the war, "anything is possible", he said. "If oil trading shifted from dollars to euros, it would be a hugely significant event and certainly a negative one" for the US economy, he said.
The US benefits from the global use of "petrodollars" because countries that import oil must have dollars on hand. This global demand for dollars helps keep the US currency strong.
Having a strong dollar lets US consumers buy imported goods for less, which helps hold down inflation.
At the same time, countries that export oil receive dollars, which they in turn invest directly in US securities to avoid currency fluctuation risks. Because these oil exporters are willing to purchase huge amounts of US Treasuries, interest rates also are kept low.
When Arabs first started looking for ways to harm the US economy in the 1970s, there was no real competitor to the US dollar. That changed on January 1, 2000, when about 300 million Europeans in 12 nations exchanged their national currencies for the euro.
This campaign against petrodollars was launched by Iraq's ousted leader Saddam Hussein himself. In September 2000, his regime announced it would no longer accept dollars for oil being sold under the United Nation's "oil for food" program. A government statement said that to confront the "daily American-Zionist aggression", oil would have to be paid for in euros. While that move had a negligible impact on the US economy, it gave Iraq a boost when the euro appreciated by 30 per cent against the US dollar in recent months...."
"Muslims eye euro as new oil currency", Cox News Service (Sydney Morning Herald) April 22 2003
http://www.smh.com.au/articles/2003/04/21/1050777210439.html
...Oh, and the vanishingly few American "consumers" who are willing to forget that they are ALSO parents, citizens, workers AND morally responsible "actors on the world stage" (not to mention taxpayers and stake-holders in what some of us like to call western civilization and the American enterprise)...
"WASHINGTON - The limping economy is showing no meaningful signs of revival, the latest batch of reports suggests.
Shoppers were tightfisted in March based on disappointing sales figures reported by the nation's largest retailers. New claims for unemployment benefits fell last week, but are still at a high level, pointing to a sluggish job market.
And, the U.S. trade deficit, while narrowing in February, was still the third highest on record...."
"U.S. Trade Deficit Narrows to $40.3B", JEANNINE AVERSA (Associated Press) Apr 10 2003
http://story.news.yahoo.com/news?tmpl=story&u=/ap/20030410/ap_on_bi_go_ec_fi/economy_12
Yep, that "strong" Dollar is an unalloyed blessing--Ask ANYBODY.....
For the record:
Approximate 2002 Gross Domestic Product
$10.4 Trillion
From: Bureau of Economic Analysis
http://www.bea.gov/bea/dn/nipaweb/TableViewFixed.asp#Mid
The (Public) Debt To the Penny
Current Amount (as of 04/22/2003):
$6,460,605,341,148.70
From: The Bureau of the Public Debt
http://www.publicdebt.treas.gov/opd/opdpenny.htm
Current Accounts Balance
Approximate Grand ("running") Total (1980-2002):
$3.3 Trillion--NEGATIVE
(Calculated using values) From: Bureau of Economic Analysis
http://www.bea.doc.gov/bea/international/bp_web/simple.cfm
[....Don't ask "anybody" though, (ESPECIALLY not a "professional Democrat" AND MOST ESPECIALLY NOT a "professional Democrat" economist) about the declining US industrial base, our increasingly weary, wary, vulnerable (and "maxed out" credit-wise) middle classes, the glaring (and growing) gap between "rich and poor" here at home, what we're doing about global warming, gang wars, or gun violence.
Whatever happened to the American Dream.
OR the current price of opium in Afghanistan.]
Posted by: Mike on April 24, 2003 08:07 AMMike, I must say, I really don't understand where you're coming from. From what I understand, you think:
-The re-appointment of Alan Greenspan, a historically unusually expansionary central banker, is a bad thing.
-Our monetary policy is excessively fixated on abolishing inflation.
-Our monetary policy is excessively fixated on growth at all costs.
-The Dollar is stronger than is in the U.S.'s interest.
I'm not sure what you think. Has Alan Greenspan done a bad job because he has persued excessively contractionary monetary policy? Has Alan Greenspan doen a bad job because he has persued excessively expansionary monetary policy? I'm confused, here. Thanks in advance.
Posted by: Julian Elson on April 24, 2003 08:45 AMJulian Elson writes:
"Mike, I must say, I really don't understand..."
Jesus, Julian. I don't see how I could have made "what I think" and "where I'm coming from" ANY plainer...
Maybe this will help:
I believe Alan Greenspan betrayed ALL of us (excepting of course, the zero point something percent of Americans he ACTUALLY works for: see my message above) when (on or about 19 December 2000) he agreed not to trash the resident select's loathesome, corrupt and deceitful little plan to loot the National treasury (by abolishing the Estate Tax)....
Bush meets man who holds key to his destiny
By Ben Fenton in Washington
(Filed: 19/12/2000)
"GEORGE W BUSH began his first visit to Washington since becoming President-elect yesterday, meeting Alan Greenspan, the man who will make or break his term of office.
At a breakfast in a small Washington hotel, Mr Bush introduced himself to the chairman of the Federal Reserve Board, who is credited with overseeing the longest period of economic growth in the United States.
Mr Greenspan, who was welcoming the fourth president to pass through during his 13-year tenure, briefed Mr Bush on the state of the economy. He may also have indicated whether, as the stock market expects, he will announce a loosening of the Fed's monetary policy by reducing interest rates today.
Mr Bush was forthright in his admiration for Mr Greenspan, who took the key job in 1987. He said, laying his hand on the chairman's shoulder: "I talked with a good man right here. We had a very strong discussion about my confidence in his abilities."
For part of their breakfast the two men were alone together, later being joined by Vice President-elect Dick Cheney and members of the new administration's prospective economic team.
In the similar meeting that he had with Bill Clinton in 1992, Mr Greenspan travelled to Little Rock, where Mr Clinton still lived in the mansion of the governors of Arkansas, and together the two men agreed on a policy of low interest rates and deficit reduction that many believe guided the United States to record budget surpluses.
Mr Bush would not say whether similar agreement had been reached yesterday during breakfast at the Madison Hotel. The President-elect declined to report the contents of their conversation, not least because the unguarded opinions of the Fed chairman have been known to cause catastrophic swings of fortune on Wall Street and around the world.
Their relationship may not always be rosy, because Mr Greenspan was critical earlier this year of the size and scope of Mr Bush's plan to introduce a $1.3 trillion (£930 billion) tax cut over 10 years. He believes that money should be used as far as politically possible for reducing the budget deficit, a policy which underpinned Al Gore's election campaign...."
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2000/12/19/wpres19.xml
...You might remember Julian, that Greenspan eventually endorsed dick/weed's "plan".
Then too, if you really want to know the truth, I'm STILL a little steamed about ANOTHER one of the OTHER frauds those very same enterprising fellas were cooking up for the OTHER ninety nine point something of us at that VERY same time:
The West Coast "energy crisis".
Remember that?
Bush, Fed: can they get along?
By Peter G. Gosselin/Los Angeles Times Staff Writer
December 19, 2000
WASHINGTON (Los Angeles Times) -- President-elect George W. Bush's post-victory swing through Washington on Monday included the first stirrings of friction in almost a decade between the nation's two most powerful economic policy-makers--the president and the chairman of the Federal Reserve Board.
Bush emerged from a breakfast meeting with Fed Chairman Alan Greenspan to declare: "I talked with a good man right here." But behind the ritual praise, some saw the outlines of nascent disagreement over tax cuts, the nation's economic condition and perhaps even the question of who is in charge of fixing it.
With the president-elect warning of economic trouble ahead, the Fed will get its first chance today to show how seriously it takes his prognostications. Its policy-making Federal Open Market Committee had been expected to say it no longer is worried as much about inflation as about a slowdown.
But the panel might actually cut interest rates. Such a move would be widely viewed as signaling both that the economy is slowing faster than the Fed had expected and that the central bank can take care of the problem on its own. Bush spent much of Monday touting his preference for the massive tax cuts he advocated during the election campaign.
"Any time growth decelerates sharply, you get an increase in the natural tension between the White House and the Fed and we're seeing that kind of deceleration," said Mickey D. Levy, chief economist of Bank of America Securities in New York. "Both sides are going to have to work very hard to understand each other's motives and objectives."
A rift of almost any sort between Bush and Greenspan would stand in marked contrast to the near-lovefest that has prevailed between the two offices during the Clinton years. At the extreme, it could produce policy mix-ups that damage investment and aggravate the economic slowdown.
Relations were last sour in the early 1990s, when aides to President George Bush, the president-elect's father, accused the Fed chairman of failing to act quickly enough to forestall the 1990-91 recession, which is widely thought to have cost the elder Bush a second term.
"His father hammered the Fed harder than any administration in recent times," said Lee Hoskins, who sat on the Federal Open Market Committee as president of the Cleveland Federal Reserve Bank in the late 1980s and early 1990s.
In addition to meeting with Greenspan on Monday, the younger Bush sat down with Republican and Democratic leaders of Congress and had lunch with a new candidate for Treasury secretary, just-retired Alcoa Chairman Paul H. O'Neill. The former metals company executive is said to have leapfrogged several big-name Wall Streeters because of his experience as a budget agency official in the Nixon and Ford administrations.
Some veteran Fed watchers cautioned that it is too early to tell how things would develop between the new president and the long-serving Fed chairman. They pointed out that there are substantial pressures on each man to make the relationship work.
"Greenspan doesn't want this to go badly," said former Fed governor Lyle E. Gramley, "and, if Bush has any brain in his head, he'll look back over the last eight years and say good things happen when you have good relations with the Fed."
Nevertheless, several hairline cracks have already appeared, starting with each side's assessment of the nation's economic health.
In a move that has left some economists and Fed watchers troubled, Bush and his vice president, Dick Cheney, have started to warn that the economy may be slipping into recession.
Although the warnings are almost universally viewed not as shots at the Fed but as political ammunition for a big tax cut, some analysts worry that they could dampen consumer confidence and make it harder for the central bank to pursue its strategy of slowing, but not stalling, the economy.
"If I were the new administration, I would not be throwing the alarms about downturn," said Charles I. Plosser, a University of Rochester Business School dean who co-chairs a widely respected economic group, the Shadown Open Market Committee. "You don't want to box [Greenspan] in."
Analysts have also been caught short by what the new president sees as the principal source of the economy's troubles: a looming energy crisis.
Soaring natural gas prices have pushed California to the edge of electricity blackouts..."
http://www.cnn.com/2000/ALLPOLITICS/stories/12/19/latimes.fed/
Tell me now, Julian: Are you STILL "confused"?
The President could care less what Alan Greenspan thinks about a new tax cut for the rich. Greenspan is useful to have at the Fed and in case your folks failed to notice, Greenspan is and has always been a Republican and supported the President's initial tax cuts which have and will continue to turn a needed surplus to an awful deficit. If you think Greenspan is a significant critic of the President's fiscal policy, then think again.
Posted by: lise on April 24, 2003 10:52 AMAlan Greenspan generally agrees with the President's thoughts on tax cutting, asking only that tax cuts be offset by spending cuts. Of course tax cuts can not be offset by spending cuts unless Medicare and Social Security are to be slashed. Do not try to make the Fed Chair other than a staunch conservative on fiscal matters. Sorry, I am not impressed. Greenspan is Feldstein is Friedman is Kudlow is Swonk is the President.
Posted by: anne on April 24, 2003 11:20 AMPresident Bush is highly popular just now and highly determined to have a large tax cut. With the House supporting the President's plan, I expect the Senate will also go along with the President.
Posted by: arthur on April 24, 2003 12:25 PMI suspect the free lunch supply-side crowd over at the National Review (e.g., Lawrence Kudlow) is not happy that a FED chair who retains his independence and will not accomodate this insane fiscal stimulus if and when the economy gets back to full employment is to be re-appointed. Kudlow's piece today flip-flopped over whether Greenspan was a good or bad FED chairman but he did not keep mentioning one fact over and over - Greenspan's age, which is 77 years old. I say keep the old guy because he has been doing a great job.
Posted by: Hal McClure on April 24, 2003 12:44 PMBush's Ohio speech today (4/24) had two rather amazing themes. On a political note, he blamed Congress for having the 2001 tax cut kick in slowly over the decade EVEN THOUGH that was the design he and Lawrence Lindsey suggested. "Perfectly timed" turns out to be poorly designed - but who's fault was that?
Prof. DeLong rightfully noted Bush flips-flops from his justification for the tax cut: is it suppose to increase savings (decrease consumption) or is it to increase consumption (decrease saving). Well, today Bush claimed we needed more aggregate demand to keep us at full employment not as a short-term policy position but as a long-term policy stimulus. Even Lord Keynes would find this contention absurd.
Posted by: Hal McClure on April 24, 2003 01:24 PMOn topic:
I have a mixed opinion of Greenspan. But I think the relevant question is this: Do you seriously think Bush would nominate someone better?
Off topic:
The warping effects of denominating oil in dollars has been a pet interest of mine. I'm curious if these effects have been quantified. Prof. DeLong, perhaps warrants becoming a topic of its own.
Posted by: chris_a on April 24, 2003 02:18 PMOn those days (like 07 March 2003) when Greenspan speaks...
"Federal Reserve Chairman Alan Greenspan said on Friday that more open economies like the United States tend to attract large flows of foreign capital, which can lead to big and potentially destabilizing current account gaps....
...And I'm feeling especially charitable: I think to myself, 'Well, the Randy old f*rt is senile OR simply mad....'
"...Speaking by satellite to an international banking symposium in Paris organized by the Bank of France, Greenspan said such imbalances should not be taken as a sign of a "systemic problem," since the process of global financial integration is not yet complete...."
...That's when I have to remind myself, 'It really doesn't matter whether he's old and/or nuts or not: He's the world's BANKERS' BANKER, fer godssake....'
"...There are limits to the accumulation of net claims against an economy that persistent current account deficits imply," Greenspan said. "The cost of servicing such claims adds to the current account deficit and, under certain circumstances, can be destabilizing..."
"Greenspan warns big trade gaps can be disruptive" (Reuters)
http://www.teletrade.com.ua/index.php?page=news_full&id=2512
(Though you MIGHT have seen it HERE
http://www.j-bradford-delong.net/movable_type/2003_archives/001135.html
first.)
Posted by: Mike on April 24, 2003 02:20 PMKHarris
Under the law, the president has the power to appoint and refuse to reappoint whomever he wants as Fed chair, but this question is a far more tender and solemn one than only what the law says. I would say that canning the Fed chair just because he disagrees with you in a Congressional testimony on some domestic policy issue is definite violation of the Fed's independence. It creates a very bad precedent for presidents to be punishing Fed chairmen and replacing them with malliable political hacks. If the guy is doing terriblly in his job, that's a completely different issue. You must put the bar for replacing Fed chairmen very high, or else it threatens to turn fed chair into a political appointment, like Attourney general or Secretary of Defense or SEC chair. I don't think the four-year term is enough to prevent this. And I think it goes without saying that we must try as hard as possible to keep politicians out of the business of monetary policy.
WHOSE, in YOUR opinion, "business" IS "monetary policy" then, Bobby?
"...Those ruggedly individulaistic, "dissent is tatamount to treason" everlovingly authoritarian devotees of the Slash and Burn (Washington/Wall Street) Branch of the Cult of the Ultra-rich[?]
...The (Public) Debt To the Penny
Current Amount (as of 04/22/2003):
$6,460,605,341,148.70
From: The Bureau of the Public Debt
http://www.publicdebt.treas.gov/opd/opdpenny.htm
Current Accounts Balance
Approximate Grand ("running") Total (1980-2002):
$3.3 Trillion--NEGATIVE
(Calculated using values) From: Bureau of Economic Analysis
http://www.bea.doc.gov/bea/international/bp_web/simple.cfm ..."
Me. Above.
"...The increasingly global economic and financial system has led to an ironing out of the cyclical swings of recession and boom, the Fed chief said, citing the recent resilience of the U.S. economy through several shocks as an example.
"Certainly, on the evidence to date, there can be little doubt that global finance and globalization ... has been a major contribution to a flattening of the business cycle," Greenspan said in answer to a question after the speech.
"If that continues and we are experiencing ever-increasing integration of cycles then it says to us that, at least to date, the record of globalization has been a very positive one indeed," he said.
Still, he cautioned: "We have to assume at some point in the future we will get deeper recessions than we are seeing."
"Greenspan warns big trade gaps can be disruptive", Reuters 07 March 2003
http://www.teletrade.com.ua/index.php?page=news_full&id=2512
"...This campaign against petrodollars was launched by Iraq's ousted leader Saddam Hussein himself. In September 2000, his regime announced it would no longer accept dollars for oil being sold under the United Nation's "oil for food" program. A government statement said that to confront the "daily American-Zionist aggression", oil would have to be paid for in euros. While that move had a negligible impact on the US economy, it gave Iraq a boost when the euro appreciated by 30 per cent against the US dollar in recent months.
Now that US military forces control Iraq, that nation is expected to once again accept greenbacks for its oil.
But if other Arab countries make the switch to euros, or even to a dollar-euro blend, the entire global oil industry would become less profitable, said Sean Callow, strategist at IDEAGlobal, a financial research firm in New York.
"Using the dollar is so important because the oil industry must have a deep, liquid market" in which to conduct its world-wide transactions, Mr Callow said. "If you have to use two currencies, it breaks up the market. It would add to transaction costs and be quite unwieldy."
"Muslims eye euro as new oil currency", Cox News Service: April 22 2003
http://www.smh.com.au/articles/2003/04/21/1050777210439.html
This is not controversial. Monetary policy is of course the business of technocrats at the Fed who are relatively independent of politics. The Federal Reserve is and has been this way at least since Carter appointed Paul Volcker. Again, an independent monetary authority is not controversial. And we fail to guard it at our peril (look at the economic history of latin America if you don't believe me).
Posted by: Bobby on April 24, 2003 04:37 PMBobby says:
"This is not controversial. Monetary policy is of course the business of technocrats at the Fed who are relatively independent of politics...."
Prince Alan (in the SAME breath and the SAME time) says:
"There are limits to the accumulation of net claims against an economy that persistent current account deficits imply...
(Nevermind that Greenspan DIDN'T even BOTHER to mention what that economically perverse "strong" petrodollar means to MOST US businesses AND MOST US workers who are vainly TRYING to compete and to sell their grossly (AND artificially) over-priced products in HIS "very positive...globalized" economy.)
But
"...such imbalances should not be taken as a sign of a 'systemic problem'."
And I say:
We're supposed to believe THAT isn't controversial and/or political?
You're a funny guy, Bobby. I'll give you that....
(See any of my previous messages on this thread for the source of that piece of quintessentially Greenspanish circular nonsense.
Then, for a somewhat dated but still reasonably straightforward discussion of the "current accounts" problem Prince Alan was paying lipservice to above, see:
Notes on the U.S. Trade and Balance of Payments Deficits
Wynne Godley
Summary
1. The United States has a balance of payments deficit worth nearly 4 percent of GDP and negative net foreign assets (or foreign debt) worth nearly 20 percent of GDP. If U.S. growth is sustained in the medium term, it is quite likely that the balance of trade in goods and services will not improve. The United States is the only major country, or country "bloc," to have a substantial trade deficit and this is proving of great advantage to the rest of the world.
2. If the balance of trade does not improve, there is a danger that over a period of time the United States will find itself in a "debt trap," with an accelerating deterioration both in its net foreign asset position and in its overall current balance of payments (as net income paid abroad starts to explode). Such a trap would call imperatively for corrective action if it is not at some stage to unravel chaotically.
3. The emergence of a debt trap is put forward as a possibility that must be taken seriously rather than as a forecast of what is most likely to happen. Policymakers are advised to ensure that adequate instruments are available should things start getting out of hand.
4. Whether the outflow of property income starts to accelerate depends critically on the rate of return earned on internationally owned assets and liabilities. The well-known condition for exploding payments on debt is that the rate of interest exceeds the growth rate. At present the United States's negative position is worth about $1,500 billion while the net foreign income outflow is only about $10 billion, so it might be supposed that there is nothing to worry about. But this is deceptive. The low rate of return overall, measured ex post, is the consequence of the extremely low return so far earned on foreign direct investments in the United States. However, the bulk of any change in the net asset position, in the future as in the past, is likely to take the form of financial investment, which has been earning a much higher rate of return and one that already slightly exceeds the growth rate. Also, the return on foreign direct investment in the United States may improve.
5. There have recently been extremely heavy direct investments by foreign firms in the United States, but a high proportion of these have been financed by exchange of shares and, to that extent, make no contribution at all to the financing of the deficit. The analysis of capital account flows and rates of return would be greatly facilitated if acquisitions financed by share exchange were identified separately in the accounts.
6. Policy responses in principle come down to:
a. Reducing domestic demand
b. Raising foreign demand
c. Reducing imports and increasing exports relative to GDP, preferably by changing relative prices
7. The danger is that resort (perhaps by default) will be had to remedy (a), in other words, that chronic and growing imbalances between the United States and the rest of the world come to impart a deflationary bias to the entire system, with harmful implications for activity and unemployment. Remedy (b) reads hollow when neither appropriate institutions nor agreed upon principles exist, but should not be dismissed out of hand. As for remedy (c), currency depreciation is the classic remedy. But, in view of the way global capital markets work, depreciation has ceased to be a policy instrument in any ordinary sense, and "floating" cannot be counted on to do the trick. Policymakers should be aware of the possibility of using nonselective (nondiscriminatory) control of imports in extremis in accordance with the principles set out in Article 12 of the WTO. Such a policy is to be sharply distinguished from "protectionism" as commonly understood...."
http://www.levy.org/docs/stratan/stratan.html )
Posted by: Mike on April 24, 2003 06:09 PM
Thank you for complimenting my sense of humor, Mike. I am not sure how your post is addressing my claim that failing to reappoint Greenspan would increase the politicization of the Fed. I am also not sure how your posts relate to my unoriginal and uncontroversial claim that the monetary authority should in principle be as independent of politics as we can make it. You are saying that the Fed is already political, but this isn't something I am denying as I imply about Greenspan himself in first post. Sorry if I gave the impression that I was denying it or that I was saying anything else.
Posted by: Bobby on April 24, 2003 09:22 PMMy compliments, Bobby. You're almost as fluent in technocratese as Prince Alan himself....
Just for the record though (I'm shooting for the best two out of three "answers" to the question here ;-) let me ask you one more time:
If Bobby, as YOU said, "we must try as hard as possible to keep politicians out of the business of monetary policy",
WHOSE, in YOUR opinion, "business" IS "monetary policy"...
...Certain conventionally "wise" ("Inflation is INHERENTLY evil! Growth is IMPERATIVE! EVERYTHING else is irrelevant!") macroeconomists, US Central bankers and THEIR bosses:
Hedge fund operators, Wall Street investment bankers, securities dealers, AND THEIR bosses--
Those ruggedly individulaistic, "dissent is tatamount to treason" everlovingly authoritarian devotees of the Slash and Burn (Washington/Wall Street) Branch of the Cult of the Ultra-rich...
...[T]he vanishingly few American "consumers" who are willing to forget that they are ALSO parents, citizens, workers AND morally responsible "actors on the world stage" (not to mention taxpayers and stake-holders in what some of us like to call western civilization and the American enterprise)...[?]"
Who, Bobby? WHOSE "business" IS monetary policy?
"...Using currency to wage economic warfare against the US "has been talked about, off and on, since the Arab oil embargo in the 1970s", said Robert Lynch, senior currency strategist in the New York office of BNP Paribas.
"It is mostly a threat" rather than a real possibility, Mr Lynch said, because switching from dollars could economically harm many Muslim countries that already hold lots of US dollars - notably Saudi Arabia. Still, given the level of Muslim anger directed at the US following the war, "anything is possible", he said. "If oil trading shifted from dollars to euros, it would be a hugely significant event and certainly a negative one" for the US economy, he said.
The US benefits from the global use of "petrodollars" because countries that import oil must have dollars on hand. This global demand for dollars helps keep the US currency strong.
Having a strong dollar lets US consumers buy imported goods for less, which helps hold down inflation.
At the same time, countries that export oil receive dollars, which they in turn invest directly in US securities to avoid currency fluctuation risks. Because these oil exporters are willing to purchase huge amounts of US Treasuries, interest rates also are kept low.
When Arabs first started looking for ways to harm the US economy in the 1970s, there was no real competitor to the US dollar. That changed on January 1, 2000, when about 300 million Europeans in 12 nations exchanged their national currencies for the euro.
This campaign against petrodollars was launched by Iraq's ousted leader Saddam Hussein himself. In September 2000, his regime announced it would no longer accept dollars for oil being sold under the United Nation's "oil for food" program. A government statement said that to confront the "daily American-Zionist aggression", oil would have to be paid for in euros. While that move had a negligible impact on the US economy, it gave Iraq a boost when the euro appreciated by 30 per cent against the US dollar in recent months.
Now that US military forces control Iraq, that nation is expected to once again accept greenbacks for its oil...."
http://www.smh.com.au/articles/2003/04/21/1050777210439.html
Is this some kind of a joke? No offense, but I'm getting the vibe that you're kinda crazy. I'm just a college kid, so don't hurt me. :)
Anyway, my answer about independent technocrats is probably an ideal towards which to strive rather than a complete reality. Compared to other countries I think our monetary authority is quite favorably balanced, especially not as overly-obsessed with price stability at the expense of full employment as the ECB. Of course it does not have an expansionary bias. I am discussing the domestic scene only and not the international one that you address.
Unfortunately, I really have no clue what you are talking about in your posts other than you hold some displeasure with my answers. I'll be taking international trade and economic development and later international monetary policy. I will be more qualified to discuss your concerns about the international scene and exchange rates then.
Posted by: Bobby on April 25, 2003 06:25 AMHere Mike. This Krugman piece addresses some of what you mentioned.
http://www.wws.princeton.edu/~pkrugman/oildollar.html
I could try to address what you wrote, and I will email you when I do just to argue why you are wrong, but I'd rather have the tools to do a good job first, and I'm pretty tired right now.
No, Bobby. "This" is NOT a "joke". I don't care whether or what kind of "student" you MIGHT be. I have no intention of "hurting" you. I'm not "crazy". AND I DIDN'T ask you what you "think" about US monetary policy.
I asked you:
If monetary policy isn't (as you SAID you would have it) our elected representatives' "business": Whose "business" IS it?
Take ALL the time you need, Bobby....
Posted by: Mike on April 25, 2003 09:19 AMI think that the Krugman piece misses an important point. Denominating oil in dollars means that the US has no exchange rate risk but other currencies do.
Suppose you have a contract to buy oil one month from now at $26. If you are in the US, then swings in the exchange rate are irrelevant. On the other hand, if you are in the Euro zone then you are taking on *all* of the currency risk. Large consumers will typically hedge this risk, at a cost. This is true even if demand for oil was highly elastic. This was one of the costs that I was wondering about when I asked if anyone had actually tried to quantify the effects.
Second, demand for oil is relatively inelastic. So and exogenous change in the dollar-euro exchange rate will translate into a change in the price of oil for euro zone countries - at least in the short term.
The CAD is around 5% and, absent correction, is heading toward 7%. As long as oil is denominated in dollars, a falling dollar has little direct effect on US companies.
On the other hand if oil were denominated in euros, US companies would have to bear the exchange rate risk. Furthermore, given the relative inelasticity of demand, a falling dollar would translate into rising oil prices. Rising oil prices would act as a drag on the economy, making the US a less attractive place to invest, etc...
I am not attempting to defend the conspiracy theory referenced in Krugman's piece. But I do think the piece overlooks some large effects. Then again, I haven't tried to quantify them. I'll repeat what I put in my original post: I would like to see this become a topic of its own, not part of the Greenspan nomination discussion.
Posted by: chris_a on April 25, 2003 09:59 AMFor SOME reason, while silently humming the theme music to "The Twilight Zone", thinking about the "intrigue" surrounding Prince Alan's reannointment AND the recent war to defend the strong petrodollar (if nothing else), my mind wandered back to a day not so long ago when--literally only hours before we invaded Iraq--the "hot topic" HERE was: "unilateralism" and "free trade". If you're the daring sort, you're at least this tall AND you like a little (harmless) thrill now and then, you're welcome to whistle past THAT graveyard with me again now...
"There is a fifth dimension beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man's fears and the summit of his knowledge. This is the dimension of imagination. It is an area which we call the Twilight Zone:
"Why No Free-Trade First Downs?
One of the (few) good things about Republican administrations is that they generally find it much easier to move the free-trade ball forward than do Democratic administrations..."
http://www.j-bradford-delong.net/movable_type/2003_archives/001192.html
Posted by: Mike on April 25, 2003 11:33 AMIf Bush did not appoint Greenspan, who would his next choice be? Is there any guarantee that a new Fed Chairman would be less critical of Bush policies? Bush has had a lot of difficulty with Senate approval of these appointments because of things that creep up in people's background. Greenspan reappointment guarantees a non-controversial Senate vote does it not?
Personally, I think Greenspan handled the economy poorly going into 2000 with all the interest rate hikes. They were not necessary and may have harmed the economy.
Posted by: bakho on April 25, 2003 03:19 PMIt is a sad commentary that reappointment of Alan Greenspan, a fan of Ayn Rand, is a sign of relative moderation. With time the Republican party gets more and more extreme so yesterday's ultra reactionaries are todays moderates.
In 1996 Barry Goldwater said something like "It looks like Bob Dole and I are the moderate wing of the Republican party ... Sheesh."
To Mike What are we going to do about all that debt ? Hell most of it is dollar denominated financial assets. The foreign suckers who own it can be robbed blind if the US accepts inflation. Non rich, young, Americans are the only people in the world who should not be worried.
Posted by: Robert on April 27, 2003 06:30 PM