This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Probing Greenspan's Easy-Money Madness

Editor's note: This is a special bonus column for TheStreet.com readers. Peter Eavis' commentary regularly appears on RealMoney.com. To sign up for RealMoney, where you can read his commentary every day, please click here for a free trial.

Alan Greenspan's most successful ruse has to been to make his speeches so dull that they mask the monumental gamble he is taking with the U.S. economy. But the Fed chairman's testimony before Congress on Wednesday clearly indicates that he believes he has won that gamble.

A growing number of Fed critics have complained that, when faced with the prospect of economic slowdown, Greenspan slashes interest rates, leading to a massive extension of easy credit. The extra debt may keep the economy afloat for a while, as it has since the crash of the Nasdaq economy and the Sept. 11, 2001, attacks.

But it does much more harm in the long run by preventing necessary restructuring of the economy, driving down saving, inhibiting future spending and endangering the long-term health of the banking system. This column has made this charge against Greenspan on numerous occasions. Raising doubts about the effects of easy money is hardly a wing-nut obsession. Two central banks -- the Bank of England and the Reserve Bank of Australia -- recently have mentioned credit growth when explaining why they have hiked interest rates.

But one line in Greenspan's testimony Wednesday shows that he is unfazed by the soaring debt levels of the U.S. He said: "All told, our accommodative monetary policy stance to date does not seem to have generated excessive volumes of liquidity or credit."

Greenspan was pushed to provide actual numbers to support his case. In fact, he couldn't talk about debt in the economy without mentioning some pretty hairy numbers. "Home mortgage debt increased about 13% last year," he noted. "The growth of nonfederal debt, at 7.75%, was relatively brisk in 2003," Greenspan added.

So where was the good news on the debt front? Well, Greenspan is encouraged that "the low level of interest rates and large volumes of mortgage refinancing activity helped reduce households' debt service and financial-obligation ratios a bit." He must be referring to the Fed yardstick that measures households' payments on financial obligations as a percentage of disposable income. Yes, it came down "a bit" in 2003 -- to 18.09% in the third quarter of last year, from 2002's high point of 18.29%. But above 18%, it is still at historically high levels.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs