In his testimony before the Congressional Committee on Financial Services the Chairman of the Federal Reserve Board, Alan Greenspan, said that he could see good chances for a sustainable expansion of the U.S. economy.
According to Greenspan:
The household sector’s financial condition is stronger, and the business sector has made substantial strides in bolstering balance sheets. Narrowing credit risk spreads and a considerable rally in equity prices have reduced financing costs and increased household wealth, which should provide substantial support for spending by businesses and households. With short-term real interest rates close to zero, monetary policy remains highly accommodative. And it appears that the impetus from fiscal policy will stay expansionary, on net, through this year.
In short, Greenspan has informed us that his low interest rate policy since January 2001 is finally starting to produce good results. But is it factually correct that the financial condition of consumers and businesses has improved to such an extent that economic expansion is likely to be sustainable? [MORE]