How It Went Wrong--And How to Make It Right

Un genial análisis de Steve Forbes sobre la actual crisis:

The consequences of central banks' trying to guide their economies are routinely disruptive, if not destructive. Inflation is almost always the result. From the 1950s through the 1970s, for example, Britain was burdened with onerous taxes--the top personal tax rate hit 98%. It never occurred to the authorities in London to lower the rates, until Margaret Thatcher came along. Instead, both Conservative and Labour governments relied on boosting government spending and on printing more pounds to get the economy moving. Inflation would then erupt, the Bank of England would have to tighten up, and the economy would go into a slump. This process was dubbed "stop-go," and left Britain the sick man of Europe.

Greenspan's woes came about precisely because he lost sight of the Fed's prime job: ensuring a stable dollar. In the late 1990s Greenspan inadvertently tightened up. The most sensitive barometer of market mistakes is gold. During that time the yellow metal plunged to a low of $250 an ounce. Other commodities crashed, with oil dropping to nearly $10 a barrel. For a time the dollar became too dear, which contributed to the 2000--01 recession. When it became clear--just before George W. Bush was sworn in as President on Jan. 20, 2001--that the economy was skidding, Greenspan realized his mistake and started to reverse gears. But he stayed too easy, even when the economy was back on track. In 2004 gold began to surge well above its 12-year average, and oil began its long, rapid ascent, as did all other commodities. The dollar weakened not only against gold but also against other currencies, such as the yen, the Swiss franc and the pound. With money easy, the already buoyant U.S. housing market began to go berserk as lending standards started to decline precipitously.

Focused on trying to steer the economy, Greenspan ignored the flashing red lights, as did his successor, Ben Bernanke. In 2006 gold soared above $600 an ounce. After the credit crisis hit last August, the price kept moving up, breaching the $1,000 barrier in mid-March, before settling down to its current $900 range.

The Fed has clearly been too loose, but so have other central banks. Hence, we have the beginnings of a global inflation, just as we did in the early 1970s.

Greenspan claims the Federal Reserve can't prevent bubbles, that these excesses of ebullience are part of the natural order of a free economy. He is right--as far as it goes. But Greenspan/Bernanke fed steroids to the already booming housing market.