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Greenspan sees inflation as biggest threat
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Alan Greenspan said late last week that inflation is the biggest longer-term threat to a recovery, adding credibility to fears that an upsurge in prices could be an unintended consequence of current policies designed to jump-start growth.
In an editorial in the Financial Times that seemed to get little play, the former Fed Chairman indicated the US and global economies still face difficulties.
He pointed to "huge unrecognized losses of US banks" which still need to be funded. And he continues to argue that US home price stability is critical before the crisis is finally put to rest.
Though excess capacity continues to suppress prices around the globe, Greenspan anticipates that inflation is the "greater economic challenge," especially if political pressures prevent central banks from reining in their inflated balance sheets in a timely manner.
He goes on to say that statistical analysis suggests the "emergence of inflation by 2012; earlier if markets anticipate a prolonged period of elevated money supply."
The Federal Reserve could begin to remove excess monetary stimulus if it perceives unemployment is poised to decline, but political pressure and worries it may stifle economic activity could preempt such an action.
Moreover, Greenspan fretted that government spending commitments are "staggering" over the next decade, potentially adding fuel to a possible surge in inflation.
"For the best chance for worldwide economic growth we must continue to rely on private market forces to allocate capital and other resources. The alternative of political allocation of resources has been tried; and it failed."
For another view of the economy and today's look at energy and a rebound in Japan: Please see my blog Tomorrow's Economy Today.
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