August 24, 2011
That’s what the Dow Jones effectively told readers today. The article reported that in response to a question at a conference:
“Greenspan also said he believes that the sharp rise in gold prices is due to market concerns about inflation taking off in the long run. He noted how there has never been such a major expansion of credit in U.S. economic history.”
Let’s look this one up. There is an organization called the “Federal Reserve Board” that puts out really good data on credit. If we look at its most recent Flow of Funds accounts, we see that credit for the economy as a whole expanded at a 3.0 percent annual rate in 2009, a 4.2 percent annual rate in 2010, and a 2.3 percent annual rate in the first quarter of 2011, the most recent quarter for which data is available.
Has there ever been “such a major expansion of credit in U.S. economic history?”
Well, actually credit expanded more rapidly than the 4.2 percent rate in 2010 in every single year that Greenspan chaired the Fed. In fact, it expanded more rapidly in every year in this series (going back to 1976) and probably every year since the Great Depression. In other words, for Alan Greenspan night is day, up is down, he is looking at an extraordinarily slow pace of credit expansion and telling reporters that is the fastest on record.
Of course, Greenspan is probably not familiar with the Flow of Funds data. If he had been, he probably would have noted the historic drop in the ratio of homeowners’ equity to market value that occurred even as house prices were soaring to record levels. (Rising house prices translate one to one into equity. Other things equal, rising house prices should have meant a rising ratio of equity to value.) This was a very clear warning sign about the housing bubble to those familiar with the Fed’s data.
A serious news service should not be passing along such ill-informed nonsense to its readers uncorrected, except if its purpose is to point out that the person who chaired the Fed for almost two decades doesn’t have a clue about the economy.
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