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6 Bumps

Do you agree with Greenspan?

WASHINGTON (CNNMoney.com) -- Massive government intervention to save the economy is to blame for the lagging recovery, Former Federal Reserve Chairman Alan Greenspan said Tuesday.

Greenspan argued for less government intervention to get the recovery rolling and businesses investing in equipment and plants.
"What we need to do now is to calm down; let things move by themselves," he said at a forum at the Council of Foreign Relations. "And indeed the rate of activism has decreased significantly and the ratio of capital flow has inched back up."

Some economists blame Greenspan, who served as Fed chair from 1987 to 2006, for keeping interest rates too low for too long and for failing to sound the alarm that Wall Street was over-leveraged and running wild.

But with Republicans in control of the House, Greenspan's views are starting to gain an audience again. Many Republicans share his opinion that intervention has created uncertainty and deterred private sector investing.

Greenspan targeted deficits created by the $787 billion 2009 Recovery Act as the main culprit behind the current sputtering recovery.

Why are deficits to blame?

Greenspan said the Treasury Department's borrowing "crowds out" companies from finding similarly low interest rates to borrow funds for capital investments on equipment and plants.

At the same time, he acknowledged that America's biggest and most-trusted companies aren't having trouble finding good interest rates. But smaller companies, he said, are struggling.

"Microsoft is not being crowded out," Greenspan said. "It's those who find an 8% or 9% interest rate, which are required of junk bonds and small businesses, which is too high."

He said he estimates that government borrowing is effectively reducing long-term capital investment by one fifth.

Answer Question
 
Carpy

Asked by Carpy at 7:48 PM on Mar. 17, 2011 in Politics & Current Events

Level 39 (114,053 Credits)
Answers (11)
  • I'm not too sure he is off the mark because the Recovery Act money certtainly hasn't done anything to boost the economy if there are still so many unemployed in this country. Right now the world is focused on Japan, but when the dust dies down and we start seeing numbers daily, we might not be too much better off. Also, today alone, crude went up another $3.00. Now I know it was below $100 a barrel for a couple of days but we cannot continue to pay high gas prices which leads to higher groceries and less spending that the government wants to see. We are kind of like in a holding pattern.
    foreverb3

    Answer by foreverb3 at 8:23 PM on Mar. 17, 2011

  • I disagree with him entirely . there is no reason to expect that private investment will bounce back given that 70% of GDP is engineered by consumer demand and most consumers are affected by falling real incomes and a very heavy debt load , with unemployment and underemployment running at high levels too. Consumers cannot boost aggregate demand for goods and services because they do not have the disposable income . There is no shotage of investment funds , just that banks are nerVous of risk and prefer to fund taleovers of existing capacity rather then fund new investment . A lot of financing has also gone into commodity speculation and hedge funds .

    Greenspan of all people should have seen the crisis coming in 2007 but he failed to heed the warnings which were coming loud and clear . As one of the architects of deregulation , he was caught with his pants down , as he acknowledged later in his ' mea culpa ' .
    janet116

    Answer by janet116 at 9:39 PM on Mar. 17, 2011

  • NO- I agree with Janet! he is backpedaling, big time.

    Sisteract

    Answer by Sisteract at 1:00 AM on Mar. 18, 2011

  • Well, yes, in the simplest form of the statement. I've been saying this all along. It's basic econ 101. (micro, I believe? the years keep passing.) The economy has to reset. It has to start over. The government artificially putting money in only prolongs the agony, because that money isn't really there. If someone who hasn't had three ounces of wine doesn't come along and elaborate, I'll be glad to do it in the morning, but right now, I HAVE had about three ounces, and am therefore quite possibly loaded. Yes, ladies, that's a half a glass.
    lovinangels

    Answer by lovinangels at 1:17 AM on Mar. 18, 2011

  • The government artificially putting money in only prolongs the agony, because that money isn't really there.

    Exactly. And then we have a load of debt that prolongs growth. I think some believe the world revolves around huge corporations.
    Carpy

    Comment by Carpy (original poster) at 3:58 AM on Mar. 18, 2011

  • Virtually all the factories in my area are smaller, privately owned companies, and they have been hurting.
    Carpy

    Comment by Carpy (original poster) at 4:00 AM on Mar. 18, 2011

  • The government artificially putting money in only prolongs the agony, because that money isn't really there.

    That's the same argument for business' that hire based on tax cuts. Getting an influx of cash that was not from more demand = NO JOB

    sweet-a-kins

    Answer by sweet-a-kins at 8:28 AM on Mar. 18, 2011

  • Absolutely. I think it's funny how the liberal brain can't comprehend why we are still in this recession like state.
    itsmesteph11

    Answer by itsmesteph11 at 10:33 AM on Mar. 18, 2011

  • The ' liberal ' brain can comprehend it quite well but then the conservative brain goes into denial . Part of the reason is outlined above, another reason was that the stimulus package was too small and not well directed . I have yet to see a formula from a conservative brain that will provide growth and a resurgence of employment . Employment is the main issue as the cost of foregone production to the economy is enormous . Tax cuts for the rich and corporate will not do it , but that and the deficit seem to be the only cells in the conservative brain that function . There are many, many issues involved in restoring the economy and it will take time .But with politicians readying themslves for the campaign trail again , I am not confident of much progress .
    janet116

    Answer by janet116 at 12:20 PM on Mar. 18, 2011

  • The ' liberal ' brain can comprehend it quite well but then the conservative brain goes into denial . Part of the reason is outlined above, another reason was that the stimulus package was too small and not well directed

    The liberal brain is why the country is in the shape it is in. Keynesian economics do not work.
    Carpy

    Comment by Carpy (original poster) at 3:54 PM on Mar. 18, 2011

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