Greenspan says history has never seen low inflation like the last few years





After nearly two decades as chairman of the Federal Reserve, Alan Greenspan wants to solidify his standing in history.

In an interview timed with the release of his memoir Monday, Mr. Greenspan sought to distance himself from the economic policies of President Bush and refute critics who say his policies at the Fed contributed to the housing bubble and bust that is now roiling the economy....

Mr. Greenspan, 81, acknowledged that the housing frenzy had been pumped up in part because of very low interest rates and in part because of the growing willingness of mortgage lenders to underwrite dubious and often fraudulent loans that were much bigger than many borrowers could realistically afford.

But he said it was a mistake to blame the Fed, which needed to reduce interest rates in order to fend off the recession of 2001 and what many economists thought was a real risk of the kind of “deflation,” an across-the-board drop in consumer prices, that had plagued Japan....

“The housing boom is not an American phenomenon — it’s a worldwide phenomenon,” Mr. Greenspan said. “The evidence is quite overwhelming that what we are going through is a consequence of the fall of the Soviet Union and the shift of a billion workers from central planning in to the labor market.”

The United States was only one of 40 countries that experience a housing boom after 2000, he said, and all of the booms were driven in part by low interest rates.

“If you line up all the major developed countries and all the developing countries, leaving out the Zimbabwes, inflation rates were all in single digits. This is utterly unprecedented, there is no history like this. And the consequence was a fairly dramatic decline in real interest rates, which created dramatic housing price increases around the world.”



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