Latest: November 13, 2002: Greenspan testimony to the Joint Economic Committee of the US Congress.
Speeches From: 1998 | 1999 | 2000 | 2001 | 2002
Gold and Economic Freedom (July 1966)
This is an article which Mr Greenspan wrote for Ayn Rand's newsletter, The Objectivist. He was a young man then.
The Challenge of Central Banking in a Democratic Society (Dec. 5, 1996)
This is the famous "irrational exuberance" speech given at the American Enterprise Institute for Public Policy Research in Washington, D.C.
Question: Is There a New Economy? (Sept. 4, 1998)
This is the speech given by Mr Greenspan at the University of California at Berkeley. See if you can spot the "hint" about interest rates.
The Crisis In Emerging Market Economies (Sept. 23, 1998)
This is Mr Greenspan's speech before the Senate Budget Committee. The market's interpretation was that that now "inflation" is under control, it's time to go for "growth".
Sept 29, 1998: Fed cuts U.S. rates by 0.25%. First rate move since March. 25, 1997.
The Long Term Capital Management (LTCM) Bail-out (Oct. 1, 1998)
On October 1, 1998, two days after the Fed cut rates at the September FOMC meeting, Mr Greenspan explained to the House Committee on Banking and Financial Services why the Fed had stepped in to bail out the LTCM hedge fund.
Press Release - Fed Funds and Discount Rate reduced 0.25% (Oct. 15, 1998)
The Fed sprung a surprise, lowering both the Fed Funds and the Discount Rate between regularly scheduled FOMC meetings. Here is the official Fed press release explaining this action.
The Structure Of The International Financial System (Nov. 5, 1998)
An overview of the history of capital flows, including a mention of the "uninhibited" capital flows under the Gold standard of the last century. Compare this with Mr Greenspan's 1966 article on Gold And Economic Freedom.
Press Release - Fed Funds and Discount rate Reduced 0.25% (Nov. 17, 1998)
Here's the press release from the FOMC which accompanied the third cut in seven weeks. The Fed had been very busy since Labor Day, 1998.
Greenspan testimony to the House Ways and Means Committee (Jan. 20, 1999)
Excerpt:
"Moreover, the impressive capital gains of recent years would seem also to rest on a perception of relatively low risk in corporate ownership. Risk aversion and uncertainty rose sharply over the late summer and fall of 1998 following the Russian default in mid-August, as evidenced by widening spreads among yields on debt of differing credit qualities and liquidity. The rise in uncertainty increased the discounting of claims on future incomes, and that reduced stock market prices even as the long-term earnings growth expectations of security analysts continued to rise. As risk aversion subsided after mid-October, stock prices returned to record levels."
Mr Greenspan is far too modest, as the Fed's action between the end of September and mid November 1998 will attest.
Greenspan testimony to the House Banking and Finance Committee (Feb. 11, 1999)
Excerpt:
"Put another way, the safety net (deposit insurance) requires that the government replace with law, regulation, and supervision much of the disciplinary role that the market plays for other businesses. Our experience in the 1980s with insured thrift institutions illustrates the necessity of avoiding expanding risks to the deposit insurance funds and lax supervisory policies and rules."
Mr Greenspan wants to "modernize" banking regulation by doing away with "Glass-Stegal" passed in the 1930s. But he doesn't want to do away with deposit insurance, also introduced in the 1930s. That't cozying up to the market a bit too much for his taste.
Humphrey-Hawkins Testimony (Feb. 23, 1999)
On Investing the Social Security Trust Fund in equities (March 3, 1999)
Exerpt:
"If social security trust funds are shifted from U.S. Treasury securities to
private debt and equity instruments, holders of those securities in the
private sector must be induced to exchange them, on net, for U.S.
Treasuries."
Greenspan testimony to the House Committee on Banking and Financial Services (May 20, 1999)
Exerpt:
"Such transparency suggests a second standard worth considering. Countries that lack the seasoning of a long history of dealing in international finance should manage their external assets and liabilities in such a way that they are always able to live without new foreign borrowing for up to, for example, one year. That is, usable foreign exchange reserves should exceed scheduled amortizations of foreign currency debts(assuming no rollovers) during the following year."
The U.S., of course, doesn't need any "foreign exchange reserves". It prints its own - U.S. Dollars. As far as living without new foreign borrowing is concerned, have you checked out the state of U.S. trade deficits lately?
Greenspan testimony to the Congressional Joint Economic Committee (June 17, 1999)
Excerpt:
"For monetary policy to foster maximum sustainable economic growth, it is useful to preempt forces of imbalance before they threaten economic stability. But this may not always be possible--the future at times can be too opaque to penetrate. When we can be preemptive we should be, because modest preemptive actions can obviate the need of more drastic actions at a later date that could destabilize the economy."
Well, the Fed obviously "can be preemptive", anytime they want to be.
FOMC Meeting press release - Fed Funds rate up 0.25% to 5.00% (June 30, 1999)
Greenspan Humphrey-Hawkins Testimony (July 22, 1999)
Excerpt:
"As I have already indicated, by its June meeting the FOMC was of the view that the full extent of this insurance was no longer needed. It also did not believe that its recent modest tightening would put the risks of inflation going forward completely into balance. However, given the many uncertainties surrounding developments on both the supply and demand side of the economy, the FOMC did not want to foster the impression that it was committed in short order to tighten further. Rather, it judged that it would need to evaluate the incoming data for more signs that further imbalances were likely to develop anything, the pace of those upward revisions has quickened of late"
That's Mr Greenspan's expanded definition of the "neutral bias" that the FOMC announced along with their 0.25% rate rise on June 30. As we said in Privateer commentary at the time, the Fed announces a "neutral bias" (or words to that effect) almost every time that they raise rates.
August 24, 1999: FOMC raised Fed Funds rate by 0.25% to 5.25%
Greenspan speech to US Bankers in Washington DC (Oct. 14, 1999)
Excerpt:
"As I have indicated on previous occasions, history tells us that sharp reversals in confidence occur abruptly, most often with little advance notice. These reversals can be self-reinforcing processes that can compress sizable adjustments into a very short period. ...We can readily describe this process, but, to date, economists have been unable to anticipate sharp reversals in confidence. Collapsing confidence is generally described as a bursting bubble, an event incontrovertibly evident only in retrospect."
November 16, 1999: FOMC raises Fed Funds and Discount Rate by 0.25% - to 5.50% and 5.00%
FOMC Meetings - Press Releases:
February 1-2 - Rate rise: Fed Funds and Discount Rate raised 0.25% - 5.75% and 5.25%
March 21 - Rate rise: Fed Funds and Discount Rate raised 0.25% - 6.0% and 5.50%
May 16 - Rate rise: Fed Funds and Discount Rate raised 0.50% - to 6.50% and 6.00%.
June 28 - No change in interest rates.
August 22 - No change in interest rates.
October 3 - No change in interest rates.
November 15 - No change in interest rates.
December 19 - No change - Focus switch from "inflation" to economic weakness
Technology and the economy
Greenspan speech to the Economic Club of New York (Jan. 13, 2000)
Excerpt:
"When we look back at the 1990s, from the perspective of say 2010, the nature of the forces currently in train will have presumably become clearer. We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever.
Alternatively, that 2010 retrospective might well conclude that a good deal of what we are currently experiencing was just one of the many euphoric speculative bubbles that have dotted human history."
February 2, 2000: FOMC raises Fed funds and Discount rates by 0.25% - to 5.75% and 5.25%
Humphrey Hawkins Testimony
Greenspan Testimony before the House Banking Committee (Feb. 17, 2000)
Excerpt:
"Another consideration that argues for letting the unified surpluses build is that the budget is still significantly short of balance when measured on an accrual basis. If social security, for example, were measured on such a basis, counting benefits when they are earned by workers rather than when they are paid out, that program would have shown a substantial deficit last year. The deficit would have been large enough to push the total federal budget into the red, and an accrual-based budget measure could conceivably record noticeable deficits over the next few years, rather than the surpluses now indicated by the official projections for either the total unified budget or the on-budget accounts. Such accruals take account of still growing contingent liabilities that, under most reasonable sets of actuarial assumptions, currently amount to many trillions of dollars for social security benefits alone."
Is there a budget surplus - or isn't there?
The Revolution in Information Technology
Greenspan speech at Boston College (March 6, 2000)
Excerpt
"The current gap between the growth of supply and demand for goods and services, of necessity, has been reflected in an excess in the demand for funds over new savings from Americans, including those savings generated by rising budget surpluses. As a consequence, real long-term corporate borrowing costs have risen significantly over the past two years.
...Until market forces, assisted by a vigilant Federal Reserve, effect the necessary alignment of the growth of aggregate demand with the growth of potential aggregate supply, the full benefits of innovative productivity acceleration are at risk of being undermined by financial and economic instability.
Structural changes to the economy and financial markets - Dec. 5, 2000
Speech given at the America’s Community Bankers Conference in New York
Exerpt
"During the past couple of years, however, the widespread optimism that was apparent in financial markets has given way to some reassessment of risks and opportunities. This process has been underway ever since the global financial crisis in the fall of 1998. ...To be sure, our current circumstances are in no way comparable to those of 1998."
And to be sure that they stayed that way, Mr Greenspan gave this speech, knowing full well the effect it would have on U.S. stock markets and on the U.S. Dollar. How long the effect lasts will be interesting to observe.
January 3 - Rate cut: Fed Funds Rate lowered 0.50% to 6.00%. Discount Rate lowered 0.25% to 5.75%. This rate cut was done between FOMC meetings.
January 4 - Another Rate cut: Discount Rate lowered 0.25% to 5.50%. Two Discount rate cuts on consecutive days is, to our knowledge, unprecedented.
January 25 - Testimony for the Federal Budget and implications for Fiscal Policy
Speech to the Committee on the Budget of the U.S. Senate
Exerpt:
"Indeed, we still do not have a full understanding of the exceptional strength in individual income tax receipts during the latter 1990s. To the extent that some of the surprise has been indirectly associated with the surge in asset values in the 1990s, the softness in equity prices over the past year has highlighted some of the risks going forward."
Not a word in this speech about interest rates, except for the favorable effect of budget surpluses and Federal debt reduction upon long-term rates - the rates which the Fed does not control.
January 31 FOMC Press Release - 0.50% cut in Fed Funds and Discount rates.
February 13 - Testimony before the Senate Committee on Banking, Housing, and Urban Affairs
Excerpt:
"... on January 3, and again on January 31, the FOMC reduced its targeted federal funds rate 1/2 percentage point, to its current level of 5-1/2 percent. An essential precondition for this type of response was that underlying cost and price pressures remained subdued, so that our front-loaded actions were unlikely to jeopardize the stable, low inflation environment necessary to foster investment and advances in productivity."
Yes, there is NO "inflation"!
February 28 - Testimony before the House Committee on Financial Services
Excerpt:
"This unpredictable rending of confidence is one reason that recessions are so difficult to forecast. They may not be just changes in degree from a period of economic expansion, but a different process engendered by fear. Our economic models have never been particularly successful in capturing a process driven in large part by nonrational behavior"
This is what "economists" like to refer to as "exogenous variables". The definition of "nonrational behaviour" (see the quote) is human beings doing things that don't fit into economic equations. What's a poor "planner" to do when people do things that aren't in the "plan"?
March 27: Speech to the National Association for Business Economics
"The challenge of measuring and modeling a dynamic economy"
Excerpt:
"The information revolution, itself, will also surely play an important role. For example, high-tech information systems might some day allow statistical agencies to tap into a great many economic transactions on a basis close to real time. More generally, I am certain that the possibilities for creatively harnessing technology for the improvement of economic measurement are much broader in scope--although, as in many other areas of endeavor, the precise directions those advances will take are difficult to predict. If we had the appropriate database, of course, who knows."
The term "dynamic economy" is redundant. If an economy is not dynamic, it is not an economy. As for "measuring" an economy, here's what one of Ludwig von Mises' most perceptive students had to say about it"
"Mathematics cannot and does not enter into measuring the ideas or values that determine human action. There are no constants in these. There is no equality. Therefore, mathematics does not apply. The use of mathematics requires constants. Mathematics cannot be used in economic theory. Mathematics can be used in economic calculation, but this depends upon a monetary unit whose purchasing power does not fluctuate violently"
(Percy L. Greaves Jr. - Understanding The Dollar Crisis - 1972)
April 18 FOMC Press Release - 0.50% cut in Fed Funds and Discount rates.
May 10 - Speech to the Conference on Bank Structure and Competition
The Financial Safety Net
Excerpt:
Our comments on this speech appeared in the Mid May 2001 (#424) issue of The Privateer
May 15 FOMC Press Release - 0.50% cut in Fed Funds and Discount rates.
June 27 FOMC Press Release - 0.25% cut in Fed Funds and Discount rates.
August 21 FOMC Press Release - 0.25% cut in Fed Funds and Discount rates.
September 17 FOMC Press Release - 0.50% cut in Fed Funds and Discount rates.
October 2 FOMC Press Release - 0.50% cut in Fed Funds and Discount rates.
November 6 FOMC Press Release - 0.50% cut in Fed Funds and Discount rates.
December 11 FOMC Press Release - 0.25% cut in Fed Funds and Discount rates.
January 11 Greenspan speech to the Bay Area Council Conference in San Francisco
"The Economy"
Exerpt:
"In the period immediately prior to September 11, there were tentative signs that some sectors of the U.S. economy had begun to stabilise, contributing to a hope that the worst of the previous cumulative weakness in world economic activity was nearing an end. That hope was decisively dashed by the tragic events of early September."
"The recent rise in (long-term) rates largely reflects the perception of improved prospects for the U.S. economy. But over the past year, some of the firmness of long-term interest rates probably is the consequence of the fall of projected budget surpluses and the implied less rapid paydowns of Treasury debt"
A speech of "reassuring caution" to start the new year. Because of the "caution", most are interpreting the speech as guaranteeing another rate cut when the FOMC meets on January 29-30. Mr Greenspan starts out by saying, in effect, but for September 11 we would be recovering already. He goes on to say that the U.S. economy WILL recover, because "new technology" means everyone gets information more quickly than they used to.
And then there's the cute little aside about stubborn long-term U.S. interest rates. Mr Greenspan implies that the "budget surpluses" will contract and the Treasury won't pay down debt so fast. In reality, the budget is going back into deficit and the Treasury plans to borrow an additional $US 750 Billion by fiscal 2003.
January 16 Greenspan speech at the opening of the American Numismatic Society
The History Of Money
Excerpts:
"Savers have been in sufficient abundance since the beginning of the Industrial Revolution to enable investment to further material well-being. Money, as a store of value, was an early facilitator of savings and one of the great inventions of mankind. Saving and investment is very difficult in a barter economy."
"The value of fiat money can be inferred only from the values of the present and future goods and services it can command. And that, in turn, has largely rested on the quantity of fiat money created relative to demand. The early history of the post-Bretton Woods system of generalized fiat money was plagued, as we all remember, by excess money issuance and the resultant inflationary instability."
"Central bankers' success, however, in containing inflation during the past two decades raises hopes that fiat money can be managed in a responsible way. This has been the case in the United States, and the dollar, despite many challenges to its status, remains the principal international currency.
"If the evident recent success of fiat money regimes falters, we may have to go back to seashells or oxen as our medium of exchange. In that unlikely event, I trust, the discount window of the Federal Reserve Bank of New York will have an adequate inventory of oxen."
(Emphasis in these exerpts by The Privateer)
READ THIS SPEECH IN ITS ENTIRETY (it's very short by Greenspan standards). According to Mr Greenspan, the monetary history of the past two decades RAISES HOPES that fiat money can be managed. But check out the last paragraph of these exerpts. Even in "jest", this is quite something. The implication is that we can either have FIAT MONEY or SEASHELLS OR OXEN. GOLD? Don't be silly. That's not something that Mr Greenspan trusts that the Fed's discount window will have an adequate inventory of.
FOMC Press Release - Fed Funds and Discount rates left unchanged (at 1.75% and 1.25%) for the first time since the December 2000 FOMC meeting.
February 27
Greenspan Testimony to the Committee on Financial Services - U.S. House Of Representatives
Excerpts:
"In the immediate aftermath of the strikes, the Federal Reserve engaged in aggressive action to counter the effects of the shock on payment systems and financial markets. We provided a huge volume of reserves through open market operations, the discount window, and other means to facilitate the functioning of the financial system."
"The monetary stimulus that we provided was visible not only in interest rates but also in a rapid growth of liquidity over the final months of the year, as gauged by the broad monetary aggregates. As the fourth quarter progressed, business and consumer confidence recovered, no doubt buoyed by successes in the war on terrorism. The improved sentiment seemed to buffer the decline in economic activity."
"as I already noted, the Federal Open Market Committee at its meeting on January 30 saw the risks nonetheless as continuing to be weighted mainly toward conditions that may generate economic weakness in the foreseeable future. In effect, the FOMC indicated that until the dynamics of sustained expansion are more firmly in place, it remained concerned about the possibility of weak growth for a time, despite the very low level of the federal funds rate."
Not exactly what either Wall Street or U.S. currency traders had been hoping for. Both the Dow and the Dollar were up sharply on the day before this speech in the "hope" that Mr Greenspan would give his "seal of approval" to the widespread talk of "recovery. He did not do this.
As you can see from the excerpts above, Mr Greenspan pulled no punches in outlining the HUGE monetary stimulus injected forcibly into the U.S. economy by the Fed in the wake of 9/11. IN his own words, he - "facilitated the functioning of the financial system". Now there's alliteration for you.
Obviously, judging from his closing remards (the third paragraph above), the Fed is still looking at lowering U.S. rates further if they deem it necessary. If Mr Greenspan really did see a "recovery" sweeping across the land, this would not be deemed necessary.
March 19
FOMC Press Release - Fed funds and Discount rates left unchanged at 1.75% and 1.25%
May 7
FOMC Press Release - Fed funds and Discount rates left unchanged at 1.75% and 1.25%
June 26
FOMC Press Release - Fed funds and Discount rates left unchanged at 1.75% and 1.25%
August 13
FOMC Press Release - Fed funds and Discount rates left unchanged at 1.75% and 1.25%
September 24
FOMC Press Release - Fed funds and Discount rates left unchanged at 1.75% and 1.25%
November 6
FOMC Press Release - Fed funds and Discount rates cut 0.50% to 1.25% and 0.75%
November 13 - The economic outlook - Greenspan testimony to the Joint Economic Committee of the US Congress
Excerpts:
"... mortgage markets have also been a powerful stabilizing force over the past two years of economic distress by facilitating the extraction of some of the equity that homeowners had built up over the years. This effect occurs through three channels: the turnover of the housing stock, home equity loans, and cash-outs associated with the refinancing of existing mortgages. Sales of existing homes have been the major source of extraction of equity. Because the buyer of an existing home almost invariably takes out a mortgage that exceeds the loan canceled by the seller, the net debt on that home rises by the amount of the difference. And, not surprisingly, the increase in net debt tends to approximate the sellers’ realized capital gain on the sale. That realized capital gain is financed essentially by the mortgage extension to the homebuyer, and the proceeds, in turn, are used to finance some combination of a down payment on a newly purchased home, a reduction of other household debt, or purchases of goods and services or other assets.
This is verse and chapter of how economic implosion has been staved off. Mr Greenspan freely acknowledges the role of zero interest rate deals for car payments and especially hte rash of mortgage refinancing in keeping the American consumer spending. He then blandly assumes that this will continue, and the US economy will recover from its current "soft spot", aided of course by the Fed's surprise 0.50% rate cut of November 6. How? No answer is given.
We have started here with Mr Greenspan's famous "irrational exuberance" speech of December 1996, prefaced by an article he wrote about Gold and the function of the Federal Reserve thirty years earlier, in 1966. Twenty-one years after Mr Greenspan's 1966 article, and just in time for the 1987 stock market crash, he became the Chairman of the Federal Reserve.
In February 2000, Alan Greenspan was confirmed in another term as Chairman of the United States Federal Reserve Board. He is seen by the vast majority of Americans (and non-Americans) as the major architect of the economic BOOM of the past decade in the U.S.A..
It is said that a young man's ideas change for the better as he matures and takes on more responsibility. Mr Greenspan has certainly taken on more responsibility since his appointment as Fed Chairman in August 1987, twenty-one years after his "Gold and Economic Freedom" article. Have his ideas "changed for the better"? You be the judge.