Alan Greenspan, head of the Fed prior to the global economic crisis, has certainly lost some credibility since all those pesky sub-prime mortgages burst the housing bubble in the US. The blame has been accredited to Greenspan because he maintained low interest rates despite alarmingly high increases in home prices.
But wait! Could it have been…the Russians?
Greenspan blames the collapse of the USSR. With so many new participants in the world economy (think of Brazil and China here as well), more growth means more resources which means…more money to go around!
This new market-based workforce, Mr. Greenspan said, helped push up growth in the developing world. This in turn fueled a global savings glut that drove down long-term interest rates, leading to an “unsustainable boom” in house prices, he said. The Globe and Mail
Okay…so that extra growth translates into cash in the hands of these developing nations. They say: “What the *$#@ should I do with this?” They decide to invest it (which is essentially lending money). This new influx of lenders allowed borrowers to demand lower interest rates.
So that’s what Greenspan thinks. Hmm…
While this could have been a contributing factor, he still kept short-term interest rates low. He can write as many papers as he wants. Nothing’s going to change that.