Alan Greenspan, former head of the US Federal Reserve, on the Greek crisis

The former head of the U.S. Federal Reserve, conservative economist Alan Greenspan argues, that the only way for Greece to get out of the present bailout terms is a Grexit — to exit the euro zone.

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Greenspan, was Chair of the US Federal Reserve from 1987 to 2006. He was a champion of free market capitalism and was part of the the inner circle of Ayn Rand and a supporter of the philosophy of Objectivism. After he became head of the Federal Reserve some objectivists criticized him for abandoning free market principles.Democrats often criticized him as having politicized his position as head of the Reserve. Greenspan argued strenuously for the privatization of social security. Although a Republican, Greenspan strongly supported President Bill Clinton in 1993 when Clinton introduced a deficit reduction plan that included tax increases and budget cuts. Greenspan's policies that shunned regulations are regarded by some as partly responsible for the recent recession. In a Congressional hearing n October of 2008, Greenspan admitted that his free-market ideology that led him not to adopt some types of regulation had been mistaken.

Greenspan has long been critical of the euro zone single currency. He believes that only a political union creates the conditions that can support a single currency. You need something like a United States of Europe. At this time, Greenspan claims the 19 sovereign countries of the euro zone are unwilling to create such an entity and hence the euro zone is doomed.

Greenspan believes that the EU will not be willing to put up even more loans that are necessary to bolster the Greek economy. German Finance Minister Wolfgang Schaeuble claims that the Greek bailout conditions were very generous and he saw no justification for relaxing them further. While Greek finance minister Yanis Vourafakis believes that he can negotiate a new deal that will allow Greek to escape from its debt trap, grow the economy, and spend on social programs, Greenspan thinks that the only way that Greece can resolve its situation is through a Grexit, or exiting the euro zone altogether. Greenspan says: "I believe [Greece] will eventually leave. I don't think it helps them or the rest of the eurozone - it is just a matter of time before everyone recognises that parting is the best strategy...The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated - actually even just fiscally integrated won't do it."As for Varoufakis and Tsipras being able to negotiate a new deal, Greenspan claims that it is the euro zone officials who hold all the cards.

While Greece will be forced to leave the euro zone according to Greenspan, this will leave the euro intact. He agrees that the zone is readier now than earlier to survive the Grexit. However, the attempt to hold the euro zone together is putting strains on other countries as well such as Italy, Portugal, Spain, and even France. Greenspan thinks that in time other southern European countries may also choose to exit the zone.

Greenspan has been wrong in the past, particularly with respect to the ability of markets to act rationally without regulation and avoid a crash. In 2008 the financial crisis, many believe, prove Greenspan wrong and he himself appears to admit this. Nevertheless, Greenspan's analysis of the situation in Europe is well worth considering and may prove correct.

Yanis Vourafakis, the Greek finance minister, continues to insist that there is no plan for a Grexit and that any such move would bring down the entire euro zone "house of cards" :“Exit from the euro does not even enter into our plans, quite simply because the euro is fragile. It is like a house of cards. If you pull away the Greek card, they all come down. Do we really want Europe to break apart? Anybody who is tempted to think it possible to amputate Greece strategically from Europe should be careful. It is very dangerous. Who would be hit after us? Portugal? What would happen to Italy when it discovers that it is impossible to stay within the austerity straight-jacket?”

Euro zone officials believe that the zone can easily withstand a Grexit. They may be correct, but in the longer run, as Greenspan points out, the pressures will grow in several southern European countries and others will leave the zone.

Alan Greenspan claims that Euro zone cannot survive in current form

Greenspan remarked::“What has been happening is not sustainable,” “We have to focus far more quickly on how to get the deficits down, because unless we do that, we cannot continually fund these things because it’s all being funded by printing money.” The band aid solutions used have failed and avoid structural issues such as uncompetitive labor markets and high deficits. Certainly the high deficits are a factor but the austerity measures are certainly reducing labor benefits and wages and selling off public assets at fire sale prices.

Greenspan said:.“Most of the ‘successes’ in this problem have been finding ways of funding the deficits, not reducing them. As long as there are deficits…you are creating ever more debt and that is not projectable indefinitely in the future,” While that is true enough perhaps the austerity measures designed to reduce deficits increase unemployment and spin the economy into decline reducing tax revenue and increasing deficits even more.

Spanish borrowing costs have risen to 7 per cent and at the same time Spanish credit has been downgraded by Moody's. Costs of Italian borrowing also increased to 5.3 per cent. For more see this article. at BNN. Markets are quite volatile as investors await the results of Greek elections on Sunday.

Greenspan backs bank nationalisation

So the free market guru and admirer of Ayn Rand now supports bank nationalisation. Obama however the new darling of the liberal left in the US stands firm against taking this course. The world is really turning upside down.


Financial Times - February 18, 2009
Greenspan backs bank nationalisation
By Krishna Guha and Edward Luce in WashingtonThe US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman has told the Financial Times.In an interview with the FT Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”Mr Greenspan’s comments capped a frenetic day in which policymakers across the political spectrum appeared to be moving towards accepting some form of bank nationalisation.“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”Speaking to the FT ahead of his speech to the Economic Club of New York last night, Mr Greenspan said that “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the Federal Deposit Insurance Corporation or some other mechanism.The former Fed chairman said temporary government ownership would ”allow the government to transfer toxic assets to a bad bank without the problem of how to price them.”But he cautioned that holders of senior debt - bonds that would be paid off before other claims - might have to be protected even in the event of nationalisation.”You would have to be very careful about imposing any loss on senior creditors of any bank taken under government control because it could impact the senior debt of all other banks,” he said. “This is a credit crisis and it is essential to preserve an anchor for the financing of the system. That anchor is the senior debt.”Mr Greenspan’s comments came as President Barack Obama signed into law the $787bn fiscal stimulus in Denver, Colorado. Mr Obama will announce on Wednesday a $50bn programme for home foreclosure relief in Phoenix, Arizona. Meanwhile, the White House was working last night on the latest phase of the bailout for two of the big three US carmakers.In his speech after signing the stimulus, which he called the “most sweeping recovery package in our history”, Mr Obama set out a vertiginous timetable of federal decisions in the coming weeks that included fixing the US banking system, submission next week of the 2009 budget and a bipartisan White House meeting to address longer-term fiscal discipline.“We need to end a culture where we ignore problems until they become full-blown crises,” said Mr Obama. “Today does not mark the end of our economic troubles … but it does mark the beginning of the end.”

Greenspan: Iraq War was about oil

This is hardly news to most of us. However, the news is that someone such as Greenspan should say this. Maybe he is getting a bit deaf or doesn't read memos telling him not to talk about oil. Greenspan's point about security of petroleum sources is precisely the same as the neo-conservative PNAC line. There are sources such as the PNAC that do set the record straight.

Greenspan: 'The Iraq war is largely about oil'
J. SCOTT APPLEWHITE, Associated Press
Alan Greenspan, left, joins President Bush and Ben S. Bernanke on Oct. 24, 2005, the day Bush named Bernanke Greenspan's successor as chairman of the Federal Reserve.
The former Federal Reserve chairman makes the comments in his new book, out today.
From Times Wire Services
September 17, 2007


WASHINGTON — "The Iraq war is largely about oil," former Federal Reserve Chairman Alan Greenspan says in his new book -- an assertion disputed by lawmakers and the U.S. Defense secretary.

"I'm saddened that it is politically inconvenient to acknowledge what everyone knows," Greenspan, 81, writes in "The Age of Turbulence: Adventures in a New World."

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Greenspan writes that the attention given by developed nations to the political situation in the Middle East is directly tied to oil security.

"Whatever their publicized angst over Saddam Hussein's 'weapons of mass destruction,' American and British authorities were also concerned about violence in an area that harbors a resource indispensable for the functioning of the world economy," he writes.

The book is scheduled for publication today.

Greenspan clarified his remarks in an interview with the Washington Post, telling the newspaper that although securing global oil supplies was "not the administration's motive," he had presented the White House with a case for why removing Hussein was important for the global economy.

"I was not saying that that's the administration's motive," Greenspan said. "I'm just saying that if somebody asked me, 'Are we fortunate in taking out Saddam?,' I would say it was essential."

He said that in his discussions with President Bush and Vice President Dick Cheney, "I have never heard them basically say, 'We've got to protect the oil supplies of the world,' but that would have been my motive."

Greenspan said that he made his economic argument to White House officials and that one lower-level official, whom he declined to identify, told him, "Well, unfortunately, we can't talk about oil."

Defense Secretary Robert M. Gates on Sunday rejected the idea that oil was a reason for the U.S.-led invasion of Iraq in March 2003.

Before the war, Iraq supplied on average 800,000 barrels of crude oil a day to the U.S., or about 8.6% of total U.S. crude oil imports, according to the U.S. Energy Department. That made it the sixth-largest supplier to the U.S., after Saudi Arabia, Mexico, Canada, Venezuela and Nigeria.