Alan Greenspan's legacy: triumph or disaster??? Must reading.

[tedzbear]

http://www.morganstanley.com/GEFdata/digests/latest-digest.html#anchor1

Andy Xie's report from Hong Kong gives an easterner's perspective on Mr. Greenspan's term from 1987 to the present. I highly recommend reading it for a great education on the history of globalization since the October 87 stock market crash.

Cheers,
T

[Boojatta]

1. Savings rates and global trade

<snip> the developing economies that earn income from global trade devote a disproportionate share to wealth accumulation. The rising US trade deficit or declining savings rate has allowed these economies to achieve strong growth despite their savings bias. Manufacturing-led Asia has benefited most from this process.

<snip>
Alan Greenspan has essentially run a Keynesian stimulus program for the global economy in the past decade.

What did Alan Greenspan do to give developing economies a high savings rate, to give the US a low savings rate, or to stimulate global trade?

Also, what was "Keynesian" about Alan Greenspan's decisions?

[tedzbear]

2. Greenspan stimulated asset values in the USA with easy money...

...and that provided us with the purchasing power to buy developing countries' exports. Since China etc. doesn't have any domestic demand to burn through their trade surplus, they accumulate savings instead. He says it right there in the article.

[Boojatta]

3. The source of purchasing power and the alleged non-existence of demand

Greenspan stimulated asset values in the USA with easy money and that provided us with the purchasing power to buy developing countries' exports. Since China etc. doesn't have any domestic demand to burn through their trade surplus, they accumulate savings instead.

What created purchasing power to buy exports? Are you saying that printing lots of money creates purchasing power?

Also, what do you mean when you say "China etc. doesn't have any domestic demand"?

[Yavin4]

4. Answers To Your Question

What created purchasing power to buy exports? Are you saying that printing lots of money creates purchasing power?

Greenspan put short term rates at 1% which essentially is negative interest rates. This unleashed a tidal wave of borrowing.

what do you mean when you say "China etc. doesn't have any domestic demand"?

China has very little domestic demand because they don't pay their workers enough to buy the products that they're producing.

[Boojatta]

5. More questions

"Greenspan put short term rates at 1% which essentially is negative interest rates. This unleashed a tidal wave of borrowing."

Who is lending the money?

"China has very little domestic demand because they don't pay their workers enough to buy the products that they're producing."

What are the people who don't pay the workers enough doing with the money that they aren't paying to the workers?

[Yavin4]

6. More answers

Who is lending the money?

Banks. Lower interest rates, lowers the cost on banks. Banks can then offer their customers lower rates on loans, as well as pay out lower rates on savings.

What are the people who don't pay the workers enough doing with the money that they aren't paying to the workers?

If you really look at globalization, you will see that it's the middlemen, exporters/importers, corrupt govt. officials, global corporatists, that's reaping the benefits. It's the Chinese government, and probably communist party officials that are getting most of the money.

We are able to play these interest rate games because the U.S. currency is still one of the most highly regarded in the world. When nations buy oil from Arab states, they must convert their currency into dollars before they do it.

[Boojatta]

7. Still more questions

"Banks can then offer their customers lower rates on loans, as well as pay out lower rates on savings."

Had Greenspan or somebody else prevented banks from lowering the interest rates that they paid to depositors?

"If you really look at globalization, you will see that it's the middlemen, exporters/importers, corrupt govt. officials, global corporatists, that's reaping the benefits. It's the Chinese government, and probably communist party officials that are getting most of the money."

That is an attempt to tell me who the people are, but my question wasn't who. My question was what. Specifically, what are they doing with the money?

[Yavin4]

8. Still More Answers

"Had Greenspan or somebody else prevented banks from lowering the interest rates that they paid to depositors?"

Yes. This is exactly what the Federal Reserve does. They regulate the banks through interest rates they charge on over-night loans. Banks are required to have a minimum amount of money in reserves at the end of the day. If they don't meet that minimum, they must borrow from other banks through over-night loans. The rate at which this borrowing is done is set by the Fed Reserve. In essence, this is the cost of money to the bank.

Banks make money on the interest they charge lenders. That rate is a function of what the Fed charges. So, when the Fed lowers interest rates, then banks lower rates on lenders. Interest paid to depositors is a function of what is charged to lenders. Interest charged to the lender has to be higher than interest paid to the depositor, otherwise, the bank goes out of business. Right?

"Specifically, what are they doing with the money?"
1.) Buying energy from around the globe

2.) Buying U.S. debt so that U.S. consumers will keep buying

3.) The rest goes to whores and crack.