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Alan Greenspan

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In the absence of the gold standard, there is no way to prevent confiscation of savings through inflation.
~ Alan Greenspan (1966)

Alan Greenspan (born March 6, 1926) is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. First appointed Federal Reserve chairman by President Ronald Reagan in August 1987, he was reappointed at successive four-year intervals until retiring on January 31, 2006 after the second-longest tenure in the position.

Quotes

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1950–60s

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  • Once stock prices reach the point at which it is hard to value them by logical methodology, stocks will be bought as they were in the late 1920s not for investment but to be unloaded at a still higher price. The ensuing break could be disastrous because panic psychology cannot be summarily altered or reversed by easing money policies.
    • Greenspan in 1959. [1].
  • The world of antitrust is reminiscent of Alice’s Wonderland: everything seemingly is, yet apparently isn’t, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet "too much" competition is condemned as "cutthroat." It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as "enlightened" when initiated by the government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict—after the fact.
    • "Antitrust", essay at the National Association of Business Economists (25 September 1961); published in Rand, Capitalism: The Unknown Ideal.
  • Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtue, not vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventative law, snooping bureaucrats, and the chronic goad of fear.
  • An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense—perhaps more clearly and subtly than many consistent defenders of laissez-faire—that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
  • In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

1970s

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  • We are obviously all hurt by inflation. Everybody is hurt by inflation. If you really wanted to examine who percentage-wise is hurt the most in their incomes, it is the Wall Street brokers. I mean their incomes have gone down the most.
    • At a conference on inflation, Washington, D.C. (September 19, 1974). In Report of the Health, Education, and Welfare, Income Security, Social Services Conference on Inflation (1974), pp. 804–5.

1980s

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  • Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.
    • Speaking to a Senate Committee in 1987, as quoted in the Guardian Weekly, November 4, 2005.
  • I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said.
    • 1988 speech, as quoted in The New York Times, October 28, 2005.
    • Sometimes misquoted as: "If I have made myself clear, I've misspoken."

1990s

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  • Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets.… But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
    • Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington, D.C., December 5, 1996 [2].
  • For some, the benign inflation outcome of 1996 might be considered surprising, as resource utilization rates--particularly of labor--were in the neighborhood of those that historically have been associated with building inflation pressures. To be sure, an acceleration in nominal labor compensation, especially its wage component, became evident over the past year. But the rate of pay increase still was markedly less than historical relationships with labor market conditions would have predicted. Atypical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity. In 1991, at the bottom of the recession, a survey of workers at large firms by International Survey Research Corporation indicated that 25 percent feared being laid off. In 1996, despite the sharply lower unemployment rate and the tighter labor market, the same survey organization found that 46 percent were fearful of a job layoff.
The reluctance of workers to leave their jobs to seek other employment as the labor market tightened has provided further evidence of such concern, as has the tendency toward longer labor union contracts. For many decades, contracts rarely exceeded three years. Today, one can point to five- and six-year contracts--contracts that are commonly characterized by an emphasis on job security and that involve only modest wage increases. The low level of work stoppages of recent years also attests to concern about job security.
Thus, the willingness of workers in recent years to trade off smaller increases in wages for greater job security seems to be reasonably well documented.
    • Testimony Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate February 26, 1997 [3]
  • Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.
    • Testimony Before the Committee on Banking and Financial Services, U.S. House of Representatives July 24, 1998 [4].
  • The reason there is very little support for the gold standard is the consequences of those types of market adjustments are not considered to be appropriate in the 20th and 21st century. I am one of the rare people who have still some nostalgic view about the old gold standard, as you know, but I must tell you, I am in a very small minority among my colleagues on that issue.
    • Speaking to a Hearing before the U.S. House of Representatives' Committee on Financial Services in 7/22/1998 [5]

2000s

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  • It hardly makes any difference who will be the next president. The world is governed by market forces.
    • [6] when asked by the Swiss newspaper Tages-Anzeiger who, in his view, would be the next president of the United States
  • Intensive research in recent years into the sources of economic growth among both developing and developed nations generally point to a number of important factors: the state of knowledge and skill of a population; the degree of control over indigenous natural resources; the quality of a country's legal system, particularly a strong commitment to a rule of law and protection of property rights; and yes, the extent of a country's openness to trade with the rest of the world. For the United States, arguably the most important factor is the type of rule of law under which economic activity takes place. When asked abroad why the United States has become the most prosperous large economy in the world, I respond, with only mild exaggeration, that our forefathers wrote a constitution and set in motion a system of laws that protects individual rights, especially the right to own property. Nonetheless, the degree of state protection is sometimes in dispute. But by and large, secure property rights are almost universally accepted by Americans as a critical pillar of our economy. While the right of property in the abstract is generally uncontested in all societies embracing democratic market capitalism, different degrees of property protection do apparently foster different economic incentives and outcomes.
    • Alan Greenspan (2004) The critical role of education in the nation's economy.
  • American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.
    • February 2004, in a speech praising the benefits of adjustable-rate mortgages.
  • Rising interest rates have been advertised for so long and in so many places that anyone who has not appropriately hedged this position by now obviously is desirous of losing money.
    • November 2004 in a speech in Frankfurt.
  • While local economies may experience significant price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity.
  • Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern.
    • May 2005, Greenspan said in a speech that he did not believe there was a national housing bubble similar to the bubble in the stock market. But he said there was "froth" in housing and he called the pace of housing price increases unsustainable.
  • A decline in the national housing price level would need to be substantial to trigger a significant rise in foreclosures, because the vast majority of homeowners have built up substantial equity in their homes despite large mortgage-market financed withdrawals of home equity in recent years.
    • July 2005, in testimony to the House Financial Services Committee.
  • [There are] signs of froth in some local markets where home prices seem to have risen to unsustainable levels.
    • July 2005, in testimony to the House Financial Services Committee.
  • That said, there can be little doubt that exceptionally low interest rates on ten-year Treasury notes, and hence on home mortgages, have been a major factor in the recent surge of homebuilding and home turnover, and especially in the steep climb in home prices. Although a 'bubble' in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.
    • Greenspan on June 9, 2005 [7].
  • The resolution of our current account deficit and household debt burdens does not strike me as overly worrisome, but that is certainly not the case for our fiscal deficit, which, according to the Congressional Budget Office, will rise significantly as the baby boomers start to retire in 2008. Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability because the budget deficit is not readily subject to correction by market forces that stabilize other imbalances.
    • March 10, 2005 [8].
  • History has not dealt kindly with the aftermath of protracted periods of low risk premiums.
    • At a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 26, 2005 [9].
  • If you get beyond the political rhetoric [and assembled a group to solve Social Security] it would take them 15 minutes. It would take them 15 minutes only because 10 minutes was used for pleasantries.
  • I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk.
    • September 2007, Greenspan's memoir The Age of Turbulence: Adventures in the New World.
  • Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration or the Congress or anybody else is requesting that we do things other than what we think is the appropriate thing, then what the relationships are don't, frankly, matter. And I've had very good relationships with presidents.
  • Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.
    • December 2007, in an interview Sunday on ABC's This Week. Greenspan suggested the government should boost support to homeowners facing the prospect of losing their homes because their mortgages are resetting to higher interest rates.
  • Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.
    • Referring to his free-market ideology, when asked in 2008 by Representative Henry Waxman of the House Oversight Committee, “You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

The Age of Turbulence (2008)

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  • The need for values is inbred. Their content is not.
    • "Introduction" p. 17.
  • Modern dynamic economies do not stay still long enough to allow for an accurate reading of their underlying structures.
    • Chapter One, "City Kid", p. 36.
  • It did not go without notice that Ayn Rand stood beside me as I took the oath of office in the presence of President Ford in the Oval Office. Ayn Rand and I remained close until she died in 1982, and I'm grateful for the influence she had on my life. I was intellectually limited until I met her.
    • Chapter Two, "The Making of an Economist", p. 52.
  • It's hard to overemphasize how important Ford's deregulation was. True, most of the benefits took years to unfold-rail freight rates, for example hardly budged at first. Yet deregulation set the stage for an enormous wave of creative destruction in the 1980s:...
    • Chapter Three, "Economics Meets Politics", p. 72.
  • Treasury Secretary Brady didn't like the Fed either. He and the president were friends and had a lot in common-both were wealthy, Yale educated patricians and members of Skull and Bones.
    • Chapter Five, "Black Monday", p. 119.
  • We generally did not talk about the stock market very much at the Fed.
    • Chapter Eight, "Irrational Exuberance", p. 165.
  • Of course, shedding the debt burden would be a happy development for our country, but it would nevertheless pose a big dilemma for the Fed. Our primary lever of monetary policy was buying and selling treasury securities-Uncle Sam's IOU's. But as the debt was paid down, those securities would grow scarce, leaving the Fed in need of a new set of assets to effect monetary policy.
    • Chapter Ten, "Downturn", p. 214.
  • I came to a stark realization: chronic surpluses could be almost as destabilizing as chronic deficits.
    • Chapter Ten, "Downturn", p. 218.
  • When trust is lost, a nation's ability to transact business is palpably undermined.
    • Chapter Twelve, "The Universals of Economic Growth", p. 256.
  • The Fabians laid the groundwork for modern social democracy, and their influence on the world would end up being at least as powerful as that of Marx.
    • Chapter Twelve, "The Universals of Economic Growth", p. 265.
  • In general, corruption tends to exist whenever governments have favors to extend, or something to sell.
    • Chapter Thirteen, "The Modes of Capitalism", p. 275.
  • Over the years I have had the most contact with Lee Kuan Yew, most recently in 2006, and have always found him impressive, even though we do not always see eye to eye. I met him first when he was George Shultz's guest at the famous (or infamous, depending on your perspective) Bohemian Grove, a male only bonding retreat among the redwoods of California.
    • Chapter Fifteen, "The Tigers and the Elephant", p. 312.
  • An area in which more rather than less government involvement is needed, in my judgment, is the rooting out of fraud. It is the bane of any market system.
    • Chapter Nineteen, "Globalization and Regulation", p. 375.
  • The probability of ten consecutive heads is 0.1 percent; thus, when you have millions of coin tossers, or investors, in the end there will be thousands of very successful practitioners of coin tossing, or stock picking.
    • Chapter Twenty-Five, "The Delphic Future", p. 465.
  • From the development of the textile loom two centuries ago to today's Internet, output per hour has increased fifty fold.
    • Chapter Twenty-Five, "The Delphic Future", p. 471.
  • Much of the securitization took the form of collateralized debt obligations (CDOs) with senior credit tranches certified by rating agencies as AAA. It was the failure to properly price such risky assets that characterized the crisis.
    • "Epilogue", p. 512.

2010s

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  • We are going through a period with no precedent in American history.


Misattributed

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  • I know you think you understand what you thought I said, but I'm not sure you realize that what you heard is not what I meant
    • Attributed to Greenspan by Rupert Cornwell, "Alan Greenspan: The buck starts here", The Independent, 27 April 2003, citing an unspecified Capitol Hill hearing. However, as Ralph Keyes notes in The Quote Verifier (2006, p. 233), "This popular tongue twister gets attributed to the obfuscator du jour." The earliest known print attribution is to Robert McCloskey, U.S. State Department spokesman, by Marvin Kalb, CBS reporter, in TV Guide, 31 March 1984, citing an unspecified press briefing during the Vietnam war.
    • Earlier attributions include: "a high government official", Annual Report, North American Gas Tax Conference, Federation of Tax Administrators, 1967; Jerry Lewis (a sign pasted on the camera during a movie shoot), by Dick Kleiner, Hollywood Correspondent, Sumter Daily Item, Feb. 4, 1970; a sign on the desk of Suzanne Schroeder, collector of bureaucratic gobbledygook, AP wire story, Sarasota Herald-Tribune, July 3, 1973; Jack Nicklaus paraphrasing Richard Nixon, by Larry Dorman, The Palm Beach Post, Dec. 8, 1979; and "a Hollywood film director", by J.D. Douglas, The Third Way, 29 December 1977. Additionally, a thesis monograph by Michael David Katz, Georgia State University, 1973 is titled with the quote.
    • On the back of the first Stealers Wheel album, a very similar statement attributed to band member Rod Coombes is found: "We know that you believe you understand what you think we said, but we are not sure you realize that what you heard is not what we meant." The album was released in 1972.
    • See Richard Nixon: "Now, when individuals read the entire transcript of the [March] 21st [1973] meeting, or hear the entire tape, where we discussed all these options, they may reach different interpretations, but I know what I meant, and I know also what I did"

Quotes About Greenspan

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  • If you look at the speeches he gave just before he left the Fed, it's pretty much “After me - the Deluge. I'm getting out while my reputation's intact”.
  • If you want a simple model for predicting the unemployment rate in the United States over the next few years, here it is: It will be what Greenspan wants it to be, plus or minus a random error reflecting the fact that he is not quite God.
  • Greenspan doesn't get out of bed before examining the political consequences.
  • I would not only reappoint Mr. Greenspan -- if Mr. Greenspan should happen to die, God forbid -- I would do like was did in the movie, 'Weekend at Bernie's.' I'd prop him up and put a pair of dark glasses on him and keep him as long as we could.
  • The most devoted member of (Ayn Rand's) inner circle was Alan Greenspan, former head of the US Federal Reserve. Among the essays he wrote for Rand were those published in a book he co-edited with her called Capitalism: The Unknown Ideal. Here, starkly explained, you'll find the philosophy he brought into government. There is no need for the regulation of business—even builders or Big Pharma—he argued, as 'the "greed" of the businessman or, more appropriately, his profit-seeking … is the unexcelled protector of the consumer.' As for bankers, their need to win the trust of their clients guarantees that they will act with honour and integrity. Unregulated capitalism, he maintains, is a 'superlatively moral system.'
  • [He is] one of the biggest political hacks we have in Washington.
  • Greenspan's reaction with regard to the stock-market bubble has caused two more bubbles to grow: a real-estate bubble and a consumer-debt bubble... History will judge him one of the worst Central Bankers ever.
  • In my view, Alan Greenspan will go down in history as one of the worst chairmen of the Federal Reserve. Future textbooks will refer to Greenspan as an example of how not to run a central bank. In order to underline the bipartisan support that Wall Street has in Congress, during his time of leadership at the Fed he was hailed not only by Republicans but also by most Democrats as "the Maestro." This, despite his extremely conservative views, which called for, among other reactionary policies, the elimination of the minimum wage. In 2000, at a House Financial Services Committee hearing on bank mergers, I asked Greenspan, "Aren't you concerned that with such a growing concentration of wealth, if one of these huge institutions fails it will have a horrendous impact on the national and global economy?" Greenspan replied, "No, I'm not. I believe that the general growth in large institutions has occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically-I should say, fully-hedged." Greenspan could not have been more wrong. Yet after leaving the Fed, he was hired to advise some of the biggest banks and wealthiest hedge fund managers in the world.
  • Greenspan kept an eye on such fluctuations as the sale of vacuum cleaners in Cleveland to, as they say, " get a precise idea about where the economy is going," and of course he micromanaged us into chaos.
    • Nasim Taleb, Antifragile - Things That Gain from Disorder, p. 126.
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