Alan Greenspan’s misunderstand of the causes of the consequences and causes
Today’s policymakers must see past Alan Greenspan’s misunderstand of the causes of the consequences and causes of the extraordinary grown of the U.S.‘s account deficit.
According to Greenspan, high rates of saving abroad led to increased consumption in the U. S. An alternative view to the cause of the growth in the deficit is that increased globilization made trade between richer countries and poor countries possible. Rich countries began to buy cheaper goods in poor countries, and poor countries continued to buy their own domestic goods because they were cheaper than those abroad.
As a result, the U. S. deficit, which was balanced in 1991, rose to $850 billion in 2006. With the increased trade effects of globilization taking place, the central banks of countries which had a surplus prevented their currencies from appreciating by printing their own currencies and buying thousands of billions of dollars to sustain their competitive advantage. Greenspan argues that no real harm believe that no real harm has been done by these trade imbalances, and that rising debt and progress go hand-in-hand. It seems more likely that the rise of the U. S.
Deficit and the paper money creation have generated an economic bubble around the world that is close to imploding. In order to stave off a complete systemic meltdown, the central banks of Europe, the U. S. , and the U. K. have injected billions into the credit markets. The Federal Reserve has been prompted to issue a round of aggressive rate cuts. U. S. lenders have expanded their balance sheets at an unprecedented pace, and the U. S. government is currently rushing through a $150 billion emergency stimulus package in an effort to prevent a world recession. Overall, it seems that Greenspan has confused cause with effect.