Greenspan's Optimism at an End?

One columnist sees Greenspan's memoir as uncharacteristically downbeat after Alan Greenspan's 18 years as an upbeat and optimistic Federal Reserve Chair. I have to say that I tend to agree with Greenspan, that times for the U.S. will get harder for a while. We have depended largely upon cheap labor and commodities from other, poorer countries, while saying that we were helping them "pull themselves up by their bootstraps." Well, funny thing is -- some of them did. And now we are seeing them demand better and wages and more fuel, energy, food, meat, textiles (you name it) for themselves. There's a reason International Funds have performed so well the last few years, and as for me, I am glad to see the change, even if it means we might have to give up that flat screen television or fancy new truck. It seems fair. Now, more than ever, we should start saving for that rainy day.

From Greenspan Taking Off Gloves in New Memoir

...In the second year of his retirement, freed from the political constraints of his old job, the maestro sounds pretty downbeat. To put it bluntly, he thinks the near-term outlook is sufficiently bleak that we'll soon be pining for his "Age of Turbulence." Between the mounting odds of a U.S. recession and a global inflation trend, Greenspan foresees sharply higher interest rates — and lower asset returns.

Putting it bluntly, of course, was never one of the chairman's faults. He's left himself plenty of wiggle room, so that the likelihood of a U.S. recession is now "slightly more than a third," i.e. only slightly higher than he estimated earlier in the year. But "we do have the capability of far bigger [housing] price declines," Greenspan told The Wall Street Journal.

And sometime after the Fed lowers interest rates to cope with that threat, it may have to jack them up again — perhaps into the double-digits — to keep the rising tide of global inflation at bay, Greenspan writes in his just-released memoir. And, by the way, Ben, you're doing a great job. Sir Alan also openly regrets the fact that the dominant political parties seem to be led by economically ignorant hacks. A pox on both their houses: The most esteemed of our public servants says he might not do his civic duty come election time. How's that for a vote of no-confidence?

The market tape seems to have Greenspan's back in at least one regard: The rapid appreciation of commodities is unquestionably eroding confidence in all the paper currencies, but in particular the U.S. dollar. The deflationary effects of the seemingly endless cheap Asian labor pool were always likely to be countered eventually by those workers' increased consumer demand. Their demand for more protein, more energy, more stuff is now stoking inflation in China and elsewhere, which Republicans and Democrats alike seem keen to import with their advocacy of a freely traded (read: weaker) dollar.