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The lies a Fed chairman tells

Our weekly commentaries provide Euro Pacific Capital's latest thinking on developments in the global marketplace. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital.
Peter Schiff
Wednesday, April 30, 2003

The following is a list of some of the lies told by Alan Greenspan during his congressional testimony earlier this morning.

1. "The U.S. is a self contained economy." How can an economy with a current account deficit of over 500 billion dollars per year and rising be a "self contained economy?"

2. "The U.S. is the most productive economy in the world." How can the U.S. be the most "productive economy in the world" if we produce so little that each month we must import 40 billion dollars worth of merchandise more than we export?

3. When asked whether he was worried about the falling value of the dollar, Greenspan replied that administration policy only allows the Secretary of the Treasury to comment on the dollar. This is ridiculous. First of all, the Fed is independent. Neither the President not the Secretary of the Treasury can enforce what amounts to a gag order on Greenspan. Secondly, the Fed is in charge of monetary policy, not the Treasury. How can the person in charge of monetary policy not be allowed to comment on the value of our money? Finally, how can the person in charge of maintaining the integrity of the dollar not be concerned when it loses value, especially given the enormity of the current account deficit, and the importance of a strong dollar in continuing to finance it?

4. While Greenspan conceded that larger deficits could result in higher interest rates he seemed to minimize the relationship. Interest rates, like all prices are determined by supply and demand. As the supply of government bonds increases the price of those bonds will always be lower than the price which would have prevailed had the supply remained the same. Interest rates are the inverse of bond prices.

5. When asked if higher property taxes might hurt the housing market, Greenspan basically replied no. Obviously anything that increases the cost of owning a home is a negative for the housing market. Greenspan handles the housing bubble with kid gloves, not wanting to say anything that might prick it.

I'm sure Greenspan told more lies, but I was too busy working to watch his entire testimony.