Thursday, April 17, 2008

The Debts of the Spenders: The Verdict on Greenspan

I've been looking at the empirical evidence. I invite you to look at table D2 and D3 of the Federal Reserve's Z1 "flow of funds".

The Greenspan Fed cut rates aggressively in 2001, and total mortgage debt (TMD) growth accelerated to what should have been an 10.4%. With rates dropping to as low as 1.25% in 2002, TMD expanded 12.1%. With rates dropping to 1.0% in 2003, TMD increased another 11.9%. Despite TMD increasing by a stunning 38% in three years, Fed funds remained at 1% through the first half of 2004. TMD growth surged to 13.5% in 2004, followed by 13.4% in 2005, and 11.6% in 2006.

Conclusion - The Greenspan Fed sat idly as mortgage credit doubled in just six years.


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