May 31, 2005
Alan Greenspan's Power
The news is full of speculation over whether Alan Greenspan has identified and will try to pop a "housing price bubble." (See Article) Those who believe he will are betting that he will raise short term interest rates until the bubble bursts. Others are entreating Mr. Greenspan to "Reminber 2000" when he raised short term interest rates in the face of a market slow down and facilitated the recession of 2001.
At some point we should wonder why a country that prided itself on an open market economy puts such power in the hands of one man. We are fortunate that he is not political, but there is no guarantee that his predecessors will not be. Moreover, he can make mistakes and when he does they are whoppers.
Can we not design a banking system that does not do this -- that relies more on market forces to set interest rates and yet still has a mechanism for putting on the brakes to stop financial panic? Surely there is a better system than this.
May 31, 2005 | Permalink
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