A Revisionist Greenspan Accuses America Of Weakening The Dollar
Greenspan chimes in on the biggest debate of the post-Bernanke era, and says "America
is also pursuing a policy of currency weakening." Duh. At this point we would love to ask the dear demented revisionist: just what on earth was your policy, Mr. ex-chairman, and why is "it" really known as the Greenspan Put? At the end of the day, does all the Fed do, aside from bubbles of course, is just create insane, cannibalistic, and completely revisionist, apparatchiks?
Greenspan's garbled, meandering and completely meaningless essay below.
As the Group of 20 meets to seek common ground on protectionism, this year’s euro crisis will hover over their deliberations. The crisis that erupted in Greece has again exposed the fragility of a key element of currency-pooling arrangements: the important value created by a pooling of interests tends to be distributed disproportionately in favour of the financially less collegial members of the pool. Thus, unless restrained, too often, some members will try to exploit their advantage, as Greece brazenly did in recent years.
The restraint imposed on the euro area by the stability and growth pact was supposed to limit euro-denominated sovereign borrowings. The pact, confronted with its first big test in 2003, failed. The cumulative consequences of the failure emerged this year as a fiscal crisis in Greece and other euro members. The benevolent mood accompanying the creation of the euro was nowhere to be seen
Fortunately, threats to European monetary union, so far, have been successfully fended off by the herculean actions of the European community assisted by the International Monetary Fund. Currency problems have now spread to the global financial system which, like the euro area, requires adherence to certain rules to sustain it. It is not only the well publicised friction between China and America – both may be right about each other – but also by the drive for competitive export advantage through currency manipulation in a world where a zero global current account balance permits none.
China has become a major global economic force in recent years. But it has not yet chosen to take on the shared global obligations that its economic status requires. Chinese policymakers still believe, incorrectly in my view, that if they cannot keep their currency suppressed and exports booming, their country faces economic contraction and dreaded political instability. But China also realises it needs the global market to prosper, and should widespread protectionism take hold, its prosperity would likely be one of its large casualties. China seems to be seeking a balance in which the renminbi appreciates against the dollar, but only modestly.
America is also pursuing a policy of currency weakening. The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world to, as they see it, the rest of the world’s competitive disadvantage. Something has to give in this arena of zero-consolidated current account balances.
One of the least heralded events of the past two years has been the recovery and vigour of global trade. The ratio of global exports to gross domestic product that fell sharply during the crisis had fully recovered by the second quarter of this year. Preliminary estimates for the third quarter, however, suggest a modest slowing.
For a half century or more, global trade has risen faster than GDP. That is one reason the Chinese development model, based on rapidly increasing global export markets, and earlier, the paradigm of the Asian tigers, have been so successful. But even without protectionism, there are clear upside limits to the growth rate of global trade. Protectionism would accelerate that slowing.
Those who wish to read more of this aneurism-inducing nonsense, may do so here.