The Marketplace Report: Europe's Greenspan Goodbye

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Alan Greenspan is set to retire as Federal Reserve chairman after more than 18 years on the job. Madeleine Brand talks to Stephen Beard of Marketplace about Europe's reaction to Greenspan's departure.

MADELEINE BRAND, host:

Back now with DAY TO DAY.

And how many times can you legitimately say this, today marks the end of an era? Well, it does after nearly two decades on the job Alan Greenspan retires as Federal Reserve chairman. And for his last act analysts expect him to raise interest points a quarter point to 4.5 percent. Despite that Greenspan steps down much admired, two Princeton economists called him the greatest central banker who ever lived. But he does have his detractors, especially abroad. Joining us from London is Marketplace's Stephen Beard.

And Stephen how is Greenspan regarded generally there in Europe?

Mr. STEPHEN BEARD (Host, Marketplace): Generally he's admired. I mean, the broad view is that he's done a good job keeping the American locomotive steaming along and on a number of occasions pulling the sluggish European economy out of the mire.

BRAND: But he does have his critics, doesn't he?

Mr. BEARD: He certainly does and the key criticism is that he's been too easy on interest rates. That in the mid to late 1990s he held rates down too low for too long and that, according to one of his critics, Peter Hartcher, author of Bubble Man, had a dangerously inflating effect on the U.S. stock market.

Mr. PETER HARTCHER (Author): Greenspan has to accept responsibility for allowing the building of that enormous stock market bubble, one of the greatest bubbles in the history in the four centuries of financial capitalism.

Mr. BEARD: Now after the dot-com crash in 2000 of course, Greenspan cut interest rates down to one percent; and that, say his critics here, has inflated an even bigger and dangerous bubble in the U.S. housing market.

BRAND: And how has this affected Europeans and the European economy?

Mr. BEARD: Well, given the dominance of the U.S. economy and the U.S. dollar it's had a big impact. I mean, essentially, say the critics, Greenspan has sent a tidal wave of cheap money around the globe and that has inflated house prices in many other countries. Britain is a case in point; I mean, they've tripled here in the past eight years. Also, so the argument runs, there's a lot more hot money splashing around, speculative cash powering into things like the oil market, for example, making a bad situation there much worse.

BRAND: And there's another argument though, and that is that he has kept inflation under control, right?

Mr. BEARD: That's true although with the help of the Chinese economic revolution. With globalization generally consumer price inflation is low, but Greenspan's critics say he missed a trick. He allowed inflation to pop up elsewhere in asset prices, and they say his cheap money policy has hugely increased the level of household debt in the U.S. and also the size of the U.S. trade deficit. As he leaves office they say he leaves the global economy in a very precarious condition.

BRAND: Stephen Beard of Public Radio's daily business show Marketplace. And Marketplace is produced by American Public Media.

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