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Alan Greenspan was one of the earliest prominent voices this year to warn about the possibility of the economy sinking into a recession.
Not content with repeating the R-word, the former Federal Reserve chairman is now uttering the S-word: stagflation.
The decade of the 1970s is enjoying something of a nostalgic revival in fashion and music at the moment, but one of its uglier sides was stagflation, a combination of slowing growth and rising inflation.
The first oil shock throttled the United States economy, prompting the Federal Reserve, led then by the pipe-smoking Arthur Burns, to cut interest rates. That helped exacerbate a swell in inflation that was not controlled until the sharp rate increases by Paul Volcker in the 1980s.
That is the scenario about which Greenspan appears to be warning the current Federal Reserve, which is cutting rates while worrying about inflationary pressures.
Appearing on ABC’s This Week With George Stephanopoulos on Sunday, Greenspan said, “We've had a period of remarkable disinflation. That period is now coming to an end, and the evidence is clearly there in rising export prices coming out of China. It's showing up in a slowed rate of productivity growth in the United States and elsewhere, and we are beginning to get, not 'stagflation,' but the early symptoms of it."
The Fed, Greenspan said, was in a position to prevent stagflation.
"One of the lessons of the last 20 years especially is that low inflation is the major contributor to economic growth overall, and that fundamentally, inflation must be suppressed," he said. "It's ultimately the Federal Reserve in this country which is the key architect of doing that, and it's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer-term period."
Greenspan, during his long promotional tour for his book The Age of Turbulence, is having it both ways: supporting the current Federal Reserve, while warning of dire consequences should it fail.
Also on Portfolio.com
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Market Movers: Jon Stewart vs. Alan Greenspan
Not content with repeating the R-word, the former Federal Reserve chairman is now uttering the S-word: stagflation.
The decade of the 1970s is enjoying something of a nostalgic revival in fashion and music at the moment, but one of its uglier sides was stagflation, a combination of slowing growth and rising inflation.
The first oil shock throttled the United States economy, prompting the Federal Reserve, led then by the pipe-smoking Arthur Burns, to cut interest rates. That helped exacerbate a swell in inflation that was not controlled until the sharp rate increases by Paul Volcker in the 1980s.
That is the scenario about which Greenspan appears to be warning the current Federal Reserve, which is cutting rates while worrying about inflationary pressures.
Appearing on ABC’s This Week With George Stephanopoulos on Sunday, Greenspan said, “We've had a period of remarkable disinflation. That period is now coming to an end, and the evidence is clearly there in rising export prices coming out of China. It's showing up in a slowed rate of productivity growth in the United States and elsewhere, and we are beginning to get, not 'stagflation,' but the early symptoms of it."
The Fed, Greenspan said, was in a position to prevent stagflation.
"One of the lessons of the last 20 years especially is that low inflation is the major contributor to economic growth overall, and that fundamentally, inflation must be suppressed," he said. "It's ultimately the Federal Reserve in this country which is the key architect of doing that, and it's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer-term period."
Greenspan, during his long promotional tour for his book The Age of Turbulence, is having it both ways: supporting the current Federal Reserve, while warning of dire consequences should it fail.
Also on Portfolio.com
Market Movers: Greenspan's Legacy: The Housing Bust
Market Movers: Jon Stewart vs. Alan Greenspan
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