What is your assessment of Alan Greenspan's record as Fed chief?
Ron Paul: If you evaluate Greenspan from a conventional perspective, you'd have to say that he was successful in that he kept the charade going. He fooled people long enough that trust in the U.S. economy's health was maintained. In other words, he was able to manufacture bubbles when they were necessary and get away with it. In the short run that looks beneficial, but in the long run it's very dangerous, just delaying the inevitable.
When you keep interest rates lower than the market rate by creating new money and credit, that is inflation. That's the source of much mischief, and he did this continuously. When the interest rate is 1 percent, you know it's way below the market rate. When it's 6 or 7 or 8, you can't be certain it's not higher than the rate would be if they had a totally hands-off position. But for the most part Federal Reserve chairmen keep the interest rate that they control lower than the market rate, and therefore they are running an inflation machine.
The incentive is always short-run, because Wall Street enjoys low interest rates. They see it as a positive sign psychologically, and it plays a role in keeping stock prices high. The majority of people still believe this is the road to prosperity, that with lower interest rates businesses do better and banks do better and everyone is going to be happy. What the Fed does is just a form of central economic planning that this country and its business community have come to accept and that I reject.
reasononline
November 2006
www.reason.com
