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I Have One Other Issue I'd Like To Throw On The Table. I Hesitate To Do It, But Let Me Tell You Some Of The Issues That Are Involved Here. If We Are Dealing With Psychology, Then The Thermometers One Uses To Measure It Have An Effect. I Was Raising The Question On The Side With Governor Mullins Of What Would Happen If The Treasury Sold A Little Gold In This Market. There's An Interesting Question Here Because If The Gold Price Broke In That Context, The Thermometer Would Not Be Just A Measuring Tool. It Would Basically Affect The Underlying Psychology.

-Alan Greenspan

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I Have One Other

Alan Greenspan

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I Have One Other Issue I'd Like To Throw On The Table. I Hesitate To Do It, But Let Me Tell You Some Of The Issues That Are Involved Here. If We Are Dealing With Psychology, Then The Thermometers One Uses To Measure It Have An Effect. I Was Raising The Question On The Side With Governor Mullins Of What Would Happen If The Treasury Sold A Little Gold In This Market. There's An Interesting Question Here Because If The Gold Price Broke In That Context, The Thermometer Would Not Be Just A Measuring Tool. It Would Basically Affect The Underlying Psychology.

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Excessive Optimism Sows The Seeds Of Its Own Reversal.

We May Be In A Rapidly Evolving International Financial System With All The Bells And Whistles Of The So-called New Economy. But The Old-economy Rules Of Prudence Are As Formidable As Ever. We Violate Them At Our Own Peril.

I Have Long Argued That Paying Down The National Debt Is Beneficial For The Economy: It Keeps Interest Rates Lower Than They Otherwise Would Be And Frees Savings To Finance Increases In The Capital Stock, Thereby Boosting Productivity And Real Incomes.

Before I Met Ayn Rand, I Was A Logical Positivist, And Accordingly, I Didn't Believe In Absolutes, Moral Or Otherwise. If I Couldn't Prove A Proposition With Facts And Figures, It Was Without Merit.

No Matter How Skillful The Trading Scheme, Over The Long Haul, Abnormal Returns Are Sustained Only Through Abnormal Exposure To Risk.

I Love Facts And Figures. It's Like Following A Detective Story, Piecing Together What's Going On In The Economy.

I Was A Good Amateur But Only An Average Professional. I Soon Realized That There Was A Limit To How Far I Could Rise In The Music Business, So I Left The Band And Enrolled At New York University.

Given Our Inevitably Incomplete Knowledge About Key Structural Aspects Of Our Ever-changing Economy And The Sometimes Asymmetric Costs Or Benefits Of Particular Outcomes, A Central Bank... Need To Consider Not Only The Most Likely Future Path For The Economy But Also The Distribution Of Possible Outcomes About That Path. They Then Need To Reach A Judgment About The Probabilities, Costs, And Benefits Of The Various Possible Outcomes Under Alternative Choices For Policy.

Incomplete Knowledge

I Have One Other Issue I'd Like To Throw On The Table. I Hesitate To Do It, But Let Me Tell You Some Of The Issues That Are Involved Here. If We Are Dealing With Psychology, Then The Thermometers One Uses To Measure It Have An Effect. I Was Raising The Question On The Side With Governor Mullins Of What Would Happen If The Treasury Sold A Little Gold In This Market. There's An Interesting Question Here Because If The Gold Price Broke In That Context, The Thermometer Would Not Be Just A Measuring Tool. It Would Basically Affect The Underlying Psychology.

Although The Outlook Is Clouded By A Number Of Uncertainties, The Central Tendencies Of The Projections .. Imply Continued Good Economic Performance In The United States.

We Will Have More Crises And None Of Them Will Look Like This Because No Two Crises Have Anything In Common Except Human Nature.

I Don't Think It's Possible For The Fed To End Its Easy-money Policies In A Trouble-free Manner. Recent Episodes In Which Fed Officials Hinted At A Shift Toward Higher Interest Rates Have Unleashed Significant Volatility In Markets, So There Is No Reason To Suspect That The Actual Process Of Boosting Rates Would Be Any Different. I Think That Real Pressure Is Going To Occur Not By The Initiation By The Federal Reserve, But By The Markets Themselves.

I Do Not Deny That Many Appear To Have Succeeded In A Material Way By Cutting Corners And By Manipulating Associates, Both In Their Professional And In Their Personal Lives. But Material Success Is Possible In This World And Far More Satisfying When It Comes Without Exploiting Others.

Corruption, Embezzlement, Fraud, These Are All Characteristics Which Exist Everywhere. It Is Regrettably The Way Human Nature Functions, Whether We Like It Or Not. What Successful Economies Do Is Keep It To A Minimum. No One Has Ever Eliminated Any Of That Stuff.

Protectionism Will Do Little To Create Jobs And If Foreigners Retaliate, We Will Surely Lose Jobs.

People Dont Realize That We Cannot Forecast The Future. What We Can Do Is Have Probabilities Of What Causes What, But Thats As Far As We Go. And Ive Had A Very Successful Career As A Forecaster, Starting In 1948 Forward. The Number Of Mistakes I Have Made Are Just Awesome. There Is No Number Large Enough To Account For That.

The Tub Helps Me Relax, And It's A Great Place To Read.

I'm A Plain Soap Kind Of Guy.

Whatever You Tax You Get Less Of.

The Process Of Innovation Is, Of Course, Never Ending.

History Demonstrates That Participants In Financial Markets Are Susceptible To Waves Of Optimism. Excessive Optimism Shows The Seeds Of Its Own Reversal In The Form Of Imbalances That Tend To Grow Over Time.

American Consumers Might Benefit If Lenders Provided Greater Mortgage Product Alternatives To The Traditional Fixed-rate Mortgage.

The Recent Evidence Increasingly Suggests That An Economic Expansion Is Already Well Under Way, Although An Array Of Influences Unique To This Business Cycle Seems Likely To Moderate Its Speed.

Developing Protectionism Regarding Trade And Our Reluctance To Place Fiscal Policy On A More Sustainable Path Are Threatening What May Well Be Our Most Valued Policy Asset: The Increased Flexibility Of Our Economy, Which Has Fostered Our Extraordinary Resilience To Shocks.

Look, I'm Very Much In Favor Of Tax Cuts, But Not With Borrowed Money. And The Problem That We've Gotten Into In Recent Years Is Spending Programs With Borrowed Money, Tax Cuts With Borrowed Money, And At The End Of The Day That Proves Disastrous. And My View Is I Don't Think We Can Play Subtle Policy Here.

If I Say Something Which You Understand Fully In This Regard, I Probably Made A Mistake.

I Was A Fairly Good Amateur Musician, And I Was An Average Professional. But The One Thing I Saw Was That The Big Band Business Was Fading.

At The Risk Of Some Oversimplification, If The Skill Composition Of Our Work Force Meshed Fully With The Needs Of Our Increasingly Complex Capital-stock, Wage-skill Differentials Would Be Stable, And The Percentage Changes In Wage Rates Would Be The Same For All Job Grades.

In The Absence Of The Gold Standard, There Is No Way To Protect Savings From Confiscation Through Inflation. There Is No Safe Store Of Value.

Clearly, Sustained Low Inflation Implies Less Uncertainty About The Future, And Lower Risk Premiums Imply Higher Prices Of Stocks And Other Earning Assets. We Can See That In The Inverse Relationship Exhibited By Price/earnings Ratios And The Rate Of Inflation In The Past. But How Do We Know When Irrational Exuberance Has Unduly Escalated Asset Values, Which Then Become Subject To Unexpected And Prolonged Contractions As They Have In Japan Over The Past Decade?

There Are No Easy Choices. Easy Choices Are Long Gone.

The Free Lunch Has Still To Be Invented.

As Long As We Issue Fiat Currency, I See No Alternative To A Legal Tender Law.

The Probability Of Ten Consecutive Heads Is 0.1 Percent; Thus, When You Have Millions Of Coin Tossers, Or Investors, In The End There Will Be Thousands Of Very Successful Practitioners Of Coin Tossing, Or Stock Picking.

But Rules Cannot Substitute For Character.

While Local Economies May Experience Significant Price Imbalances, A National Severe Price Distortion Seems Most Unlikely In The United States, Given Its Size And Diversity.

If Prices Go Down, We Will Have Problems - Problems In The Sense Of Spillover To Other Areas.

What An Ideology Is Is A Conceptual Framework With The Way People Deal With Reality. Everyone Has One. You Have To, To Exist You Need An Ideology. The Question Is Whether It Is Accurate Or Not.

An Almost Hysterical Antagonism Toward The Gold Standard Is One Issue Which Unites Statists Of All Persuasions. They Seem To Sense... That Gold And Economic Freedom Are Inseparable.

The Gut-feel Of The 55-year Old Trader Is More Important Than The Mathematical Elegance Of The 25-year Old Genius.

The Iraq War Is Largely About Oil.

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It Has Been My Experience That Competency In Mathematics, Both In Numerical Manipulations And In Understanding Its Conceptual Foundations, Enhances A Person's Ability To Handle The More Ambiguous And Qualitative Relationships That Dominate Our Day-to-day Financial Decision-making

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...our Market System Depends Critically On Trust-trust In The Word Of Our Colleagues And Trust In The Word Of Those With Whom We Do Business.

This Decade Is Strewn With Examples Of Bright People Who Thought They Built A Better Mousetrap That Could Consistently Extract Abnormal Returns From The Financial Markets. Some Succeed For A Time. But While There May Occasionally Be Mis-configurations Among Market Prices That Allow Abnormal Returns, They Do Not Persist.

The Use Of A Growing Array Of Derivatives And The Related Application Of More-sophisticated Approaches To Measuring And Managing Risk Are Key Factors Underpinning The Greater Resilience Of Our Largest Financial Institutions... Derivatives Have Permitted The Unbundling Of Financial Risks.

If We Allow Terrorism To Undermine Our Freedom Of Action, We Could Reverse At Least Part Of The Palpable Gains Achieved By Postwar Globalization. It Is Incumbent Upon Us Not To Allow That To Happen.

History Has Not Dealt Kindly With The Aftermath Of Protracted Periods Of Low Risk Premiums.

Without The Triggers, That Tax Cut Is Irreponsible Fiscal Policy. Eventually, I Think That Will Be The Consensus View.

Nor Can Private Counterparties Restrict Supplies Of Gold, Another Commodity Whose Derivatives Are Often Traded Over-the-counter, Where Central Banks Stand Ready To Lease Gold In Increasing Quantities Should The Price Rise.

The Economy Is Turning, And Credit Comes In With A Lag, .. To The Extent That A Number Of Small Firms Are Finding It Difficult To Get The Credit They Need At A Price They Can Afford, That's Likely To Change For The Better.

In An Economy That Already Has Lost Some Momentum, One Must Remain Alert To The Possibility That Greater Caution And Weakening Asset Values In Financial Markets Could Signal Or Precipitate An Excessive Softening In Household And Business Spending.

I Am Saddened That It Is Politically Inconvenient To Acknowledge What Everyone Knows: The Iraq War Is Largely About Oil.

Regulators Have Not Been Able To Achieve The Level Of Future Clarity Required To Act Pre-emptively. The Problem Is Not Lack Of Regulation But Unrealistic Expectations. What We Confront In Reality Is Uncertainty, Some Of It Frighteningly So...

I Love To Play Tennis And Golf, Listen To Music, Watch Baseball And Root For The Redskins.

Anyone Willing To Do What Is Required To Become President Of The United States Is Thereby Barred From Taking That Office. I'm Only Half Joking

The Recent Period Has Been Marked By A Transformation To An Economy That Is More Productive As Competitive Forces Become Increasingly Intense And New Technologies Raise The Efficiency Of Our Businesses...while These Tendencies Were No Doubt In Train In The "old," Pre-1990s Economy, They Accelerated Over The Past Decade As A Number Of Technologies With Their Roots In The Cumulative Innovations Of The Past Half-century Began To Yield Dramatic Economic Returns.

Cash Is Available And We Should Use That In Larger Amounts, As Is Necessary, To Solve The Problems Of The Stress Of This.

We Are In The Midst Of A Once-in-a-century Credit Tsunami. Central Banks And Governments Are Being Required To Take Unprecedented Measures. Those Of Us Who Have Looked To The Self-interest Of Lending Institutions To Protect Shareholders' Equity Are In A State Of Shocked Disbelief.

By Far The Most Significant Event In Finance During The Past Decade Has Been The Extraordinary Development And Expansion Of Financial Derivatives.

When Trust Is Lost, A Nation's Ability To Transact Business Is Palpably Undermined.

I'm Not Denying That Monopolies Are Terrible Things, But I Am Denying That It Is Readily Easy To Resolve Them Through Legislation Of That Nature.

We Need, In Effect, To Make The Phantom 'lock-boxes' Around The Trust Fund Real.

I'm A Better Economist Than I Was A Sax Player.

[republicans] Swapped Principle For Power. They Ended Up With Neither. They Deserved To Lose.

These Days, Even Out Of Office, I Still Read Economic Reports.

Significantly Opening Up Immigration To Skilled Workers Solves Two Problems. The Companies Could Hire The Educated Workers They Need. And Those Workers Would Compete With High-income People, Driving More Income Equality.

The Arts Develop Skills And Habits Of Mind That Are Important For Workers In The New Economy Of Ideas.

If We Are To Remain Preeminent In Transforming Knowledge Into Economic Value, America's System Of Higher Education Must Remain The World's Leader In Generating Scientific And Technological Breakthrough, And In Meeting The Challenge To Educate Workers.

All Taxes Are A Drag On Economic Growth. It's Only A Question Of Degree.

The More Flexible An Economy, The Greater Its Ability To Self-correct In Response To Inevitable, Often Unanticipated, Disturbances And Thus To Contain The Size And Consequences Of Cyclical Imbalances.

Greenspan, Who Knew So Much More Than Most, Knew Far Less Than Most Supposed.

A Decline In The National Housing Price Level Would Need To Be Substantial To Trigger A Significant Rise In Foreclosures, Because The Vast Majority Of Homeowners Have Built Up Substantial Equity In Their Homes Despite Large Mortgage-market Financed Withdrawals Of Home Equity In Recent Years.

The Guiding Purpose Of The Government Regulator Is To Prevent Rather Than To Create Something.

There Is No Evidence That The Business Cycle Has Been Repealed.

The Current Financial Crisis In The Us Is Likely To Be Judged In Retrospect As The Most Wrenching Since The End Of The Second World War.

What We Have Found Over The Years In The Marketplace Is That Derivatives Have Been An Extraordinarily Useful Vehicle To Transfer Risk From Those Who Shouldn't Be Taking It To Those Who Are Willing To And Are Capable Of Doing So.

Any Informed Borrower Is Simply Less Vulnerable To Fraud And Abuse.

The Abandonment Of The Gold Standard Made It Possible For The Welfare Statists To Use The Banking System As A Means To An Unlimited Expansion Of Credit. In The Absence Of The Gold Standard, There Is No Way To Protect Savings From Confiscation Through Inflation. There Is No Safe Store Of Value. Deficit Spending Is Simply A Scheme For The Hidden Confiscation Of Wealth. Gold Stands In The Way Of This Insidious Process. It Stands As A Protector Of Property Rights. If One Grasps This, One Has No Difficulty In Understanding The Statists' Antagonism Toward The Gold Standard.

I Don't Know Where The Stock Market Is Going, But I Will Say This, That If It Continues Higher, This Will Do More To Stimulate The Economy Than Anything We've Been Talking About Today Or Anything Anybody Else Was Talking About.

I'm Always Amazed That My Wife Can Handle Different Subjects - One Day Politics, The Next Day Foreign Policy. And She Always Has So Much Fun Doing It. We Make A Good Team.

Productivity Is Notoriously Difficult To Predict.

Without Calling The Overall National Issue A Bubble, It's Pretty Clear That It's An Unsustainable Underlying Pattern.

In General, Corruption Tends To Exist Whenever Governments Have Favors To Extend, Or Something To Sell.

I Believe That The General Growth In Large [financial] Institutions Have Occurred In The Context Of An Underlying Structure Of Markets In Which Many Of The Larger Risks Are Dramatically -- I Should Say, Fully -- Hedged.

Even Though Some Down Payments Are Borrowed, It Would Take A Large, And Historically Most Unusual, Fall In Home Prices To Wipe Out A Significant Part Of Home Equity. Many Of Those Who Purchased Their Residence More Than A Year Ago Have Equity Buffers In Their Homes Adequate To Withstand Any Price Decline Other Than A Very Deep One.

I Must Say, I Never Expected To See The Day Where I Would Be Talking About Anything Other Than Reducing The Debt, I'm Running Into The Tyranny Of Zero, Which Is Where You Can't Reduce (the Debt) Any More

Deficit Spending Is Simply A Scheme For The 'hidden' Confiscation Of Wealth. Gold Stands In The Way Of This Insidious Process. It Stands As A Protector Of Property Rights.

I've Been In And Out Of Wall Street Since 1949, And I've Never Seen The Type Of Animosity Between Government And Wall Street. And I'm Not Sure Where It Comes From, But I Suspect It's Got To Do With A General Schism In This Society Which Is Really Becoming Ever More Destructive.

It's A Bubble. It Has To Have Intrinsic Value. You Have To Really Stretch Your Imagination To Infer What The Intrinsic Value Of Bitcoin Is. I Haven't Been Able To Do It. Maybe Somebody Else Can.

I've Always Argued That This Country Has Benefited Immensely From The Fact That We Draw People From All Over The World.

Regulation - Which Is Based On Force And Fear - Undermines The Moral Base Of Business Dealings. It Becomes Cheaper To Bribe A Building Inspector Than To Meet His Standards Of Construction. Protection Of The Consumer By Regulation Is Thus Illusory.

We As Central Bankers Need Not Be Concerned If A Collapsing Financial Asset Bubble Does Not Threaten To Impair The Real Economy, Its Production, Jobs And Price Stability.

The Only Sustainable Way To Increase Demand For Vacant Houses Is To Spur The Formation Of New Households. Admitting More Skilled Immigrants, Who Tend To Earn Enough To Buy Homes, Would Accomplish That While Paying Other Dividends To The U.s. Economy.

Crony Capitalism Is Essentially A Condition In Which... Public Officials Are Giving Favours To People In The Private Sector In Payment Of Political Favours.

Indeed, Better Risk Management May Be The Only Truly Necessary Element Of Success In Banking.

It Is Decidedly Not True That "nice Guys Finish Last," As That Highly Original American Baseball Philosopher, Leo Durocher, Was Alleged To Have Said.

Any Onset Of Increased Investor Caution Elevates Risk Premiums And, As A Consequence, Lowers Asset Values And Promotes The Liquidation Of The Debt That Supported Higher Asset Prices, ... This Is The Reason That History Has Not Dealt Kindly With The Aftermath Of Protracted Periods Of Low Risk Premiums.

Institutions Of The Newer Participants In Global Finance Had Not Been Tested, Until Recently...recent Crisis Have Underscored Certain Financial Structure Vulnerabilities That Are Not Readily Assuaged In The Short Run.

And Whatever Their Publicized Angst Over Saddam Hussein's 'weapons Of Mass Destruction,' American And British Authorities Were Also Concerned About Violence In An Area That Harbors A Resource Indispensable For The Functioning Of The Word Economy. I Am Saddened That It Is Politically Inconvenient To Acknowledge What Everyone Knows: The Iraq War Is Largely About Oil.

Mass Destruction

But How Do We Know When Irrational Exuberance Has Unduly Escalated Asset Values, Which Then Become Subject To Unexpected And Prolonged Contractions As They Have In Japan Over The Past Decade?

The True Measure Of A Career Is To Be Able To Be Content, Even Proud, That You Succeeded Through Your Own Endeavors Without Leaving A Trail Of Casualties In Your Wake.

Anything That We Can Do To Raise Personal Savings Is Very Much In The Interest Of This Country.

Credit-default Swaps, I Think, Have Serious Problems Associated With Them.

Well, You Probably Will Always Believe There Should Be Laws Against Fraud, And I Don't Think There Is Any Need For A Law Against Fraud.

It Seems Superfluous To Constrain Trading In Some Of The Newer Derivatives And Other Innovative Financial Contracts Of The Past Decade. The Worst Have Failed; Investors No Longer Fund Them And Are Not Likely To In The Future.

Improvements In Lending Practices Driven By Information Technology Have Enabled Lenders To Reach Out To Households With Previously Unrecognized Borrowing Capacities.

If You Get Beyond The Political Rhetoric [and Assembled A Group To Solve Social Security] It Would Take Them 15 Minutes. It Would Take Them 15 Minutes Only Because 10 Minutes Was Used For Pleasantries.

Regulation Of Derivatives Transactions That Are Privately Negotiated By Professionals Is Unnecessary.

I Cannot Conceive Of A Politically Feasible Solution To This Problem Which Will Overdo Cutting The Deficit, Where Overdoing Means Harming The Economy. It Might Be Technically Possible, But It Is Not Realistic.

I Guess I Should Warn You, If I Turn Out To Be Particularly Clear, You've Probably Misunderstood What I've Said.

Senator, We Are Groping For Understanding, The Knowledge You Assume I Possess Doesn't Exist' - 'the Only Effective Regulation Lies In The Propensity Of Customers To Choose Alternatives, Of Investors To Move Their Funds Elsewhere And Of Labour To Acquire Technical Skills' - 'senator, If I Seem Clear To You, You Must Have Misunderstood Me' - 'unfortunately, Senator, Nobody Knows Where The Next Innovative Idea Is Coming From. Political Decisions Are Never Random And Will Always Lose Out To Innovative Alternatives

It's Hard To Overemphasize How Important Ford's Deregulation Was. True, Most Of The Benefits Took Years To Unfold-rail Freight Rates, For Example Hardly Budged At First. Yet Deregulation Set The Stage For An Enormous Wave Of Creative Destruction In The 1980s.

Now, I Only Play Very Occasionally, And In Fact, More Piano Than Clarinet Or Sax.

There Is Nothing To Guarantee The Superior Judgment, Knowledge, And Integrity Of An Inspector Or A Bureaucrat-and The Deadly Consequences Of Entrusting Him With Arbitrary Power Are Obvious.

The Need For Values Is Inbred. Their Content Is Not.

We Cannot Rule Out A Situation In Which A Preemptive Policy Tightening Becomes Necessary, ... Such Caution Seems Especially Warranted With Regard To The Sharp Rise In Equity Prices During The Past Two Years. These Gains Have Obviously Raised Questions Of Sustainability.

We Ought To Be Opening Up Our Borders To Skilled Labour From All Parts Of The World Because [the State Of The World Is As Follows: ] If We Were To Do That We Would Increase The Supply Of Skilled Workers That Our Schools Have Been Unable To Create And As A Consequence Of That We Would Lower The Average Wage Of Skills And Reduce The Degree Of Income Inequality In This Country.

Gold, Unlike All Other Commodities, Is A Currency...and The Major Thrust In The Demand For Gold Is Not For Jewelry. It's Not For Anything Other Than An Escape From What Is Perceived To Be A Fiat Money System, Paper Money, That Seems To Be Deteriorating.

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