In the nearly two decades that Alan Greenspan served as chairman of the
, it was often said that the size of his briefcase was an indicator of what the Fed planned to do with interest rates.
But to hear Greenspan tell it, whether "the briefcase was fat or thin depended on whether my wife had time to make me lunch."
The so-called briefcase indicator was just one topic that Greenspan touched on during the Schwab Impact 2006 conference in Washington, D.C. Monday. He also answered questions about the economy and the housing market, joked about some of his more famous phrases and spoke about life after the Fed.
On the economy, Greenspan was fairly encouraging, saying "things don't look bad." Profit margins are high and capital goods orders are showing some strength. That shows some underlying momentum, he said.
Greenspan did, however, note a couple of concerns, including the concentration of income, especially in the U.S.
Regarding housing, "we still have a ways to go on the downside,
but it looks as though the worst is behind us," Greenspan said.
The level of unsold single-family units is still high and has a long way to go to lower inventories, he said, adding that the issue is how fast that happens, though it looks "more gradually than very rapidly." (Total housing inventory levels fell 2.4% at the end of September to 3.75 million, according to the National Association of Realtors, representing 7.3 months of supply at the current sales pace.)
Greenspan notes that a large part of the excess (or "froth" as he once called it) has been taken out of the residential housing market, and while there are still negatives, it's no longer subtracting from GDP growth. It's becoming a smaller negative, and that will take some negative pressure off of the economy.
Contributing to the tepid 1.6% growth of third-quarter GDP, residential investment fell at a 17.4% annual rate in the quarter following an 11.1% rate of decline in the second quarter. The decline was the fourth in a row and the worst since 1990. "If the data fit the pattern of past housing downturns, there will probably be around three or four large declines (including the recent two), followed by a rebound back into positive territory," writes Tony Crescenzi, chief Treasury strategist at Miller Tabak and
Separately, the former Fed chairman expressed concern about the future of medical spending and practices. One issue is that there is a smaller labor force charged with serving the baby boomer generation, he said.
From a public policy standpoint, Greenspan said he is fearful that more has been promised than can be delivered. "I think that's irresponsible."
On the global economy, Greenspan said that while there are some problems (again mentioning the concentration of wealth), overall it "is in extraordinarily good shape."
Greenspan said "we've got a fairly good fix on the demographics going forward." The population is expanding in the U.S., China and India, while Japan and Europe are turning down, he said. He also expects that a share of the output in the developed world will ease somewhat.
Greenspan also spoke about his view of hedge funds, saying they are "extraordinarily important" and referring to them as the "pollinating bees of Wall Street."
Hedge funds take out inefficiencies in the market, he said. "Anything that takes that out is incredibly important."
The former Fed chairman also answered questions regarding his tenure with the Fed, saying there were no decisions made during that time that in retrospect, knowing what they did then, he would have made differently. The statement comes just days after Dallas Fed President Richard Fisher, citing faulty inflation data, said: "In retrospect, the real fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been" in 2003-2004.
Greenspan also joked about the clout given to some of his more famous sayings like "irrational exuberance" (in a speech about the stock market in 1996) and "conundrum" (referring to a decline in long-term rates as the Fed began raising short-term interest rates in 2004) saying: "Someone take away my dictionary."
Finally, the retired Fed chief also commented on life after the Fed saying simply, "it's different."
"There's nothing like being in the private sector," he said, a comment that triggered a laugh from the audience largely comprised of financial advisers and others of their ilk.