There has been a lot of discussion recently about who is to blame for the current economic and financial situation. I firmly believe that Alan Greenspan cannot be excluded from those that deserve such blame. There is only one question that needs to be asked: who was the Chairman of the Board of Governors of the Federal Reserve System in the period from 2001 until January 31, 2006? Now look at the chart of the exchange rate between the U. S. Dollar and the Euro during this time. (http://research.stlouisfed.org/fred2/series/EXUSEU?cid=95.)
Need I say more?
By the end of 2006 things were beginning to unravel in the rest of the economy. The rest is history.
Greenspan was an expert on the minutiae pertaining to business cycles. He cut his teeth during the time when understanding short term movements in the economy, independent of what was going on in the rest of the world, was the fashion in economic forecasting. Times changed. Greenspan didn’t.
Substantial dislocation in world and domestic economic and financial markets;
Substantial commodity price inflation; and
The largest sell-off of American assets in the history of the United States. See “Foreign Investors Pile Up More Pieces of Americana,” http://www.nytimes.com/2008/07/10/business/worldbusiness/10wealth.html?_r=1&oref=slogin.
Certainly monetary policy is not the sole cause of the present unpleasantness. The irresponsible fiscal policy of the period cannot be passed over and the failure of the United States government to develop a sound energy policy must also be included in the picture. But, Greenspan cannot be excused from events because of what was happening in the housing market or some other market. This just diverts attention.
The most important price in an economy is the price of its currency in foreign exchange markets. In watching over this price…Greenspan failed miserably.