Now that Alan Greenspan is no longer the Fed chairman, some financial commentators are daring to suggest that perhaps the present financial crisis is the result of the extremely low interest rate policy of Greenspan’s Fed between December 2000 to June 2004 that fueled the housing bubble.
Greenspan denies it on grounds that the Fed has no control over long-term interest rates.
While Greenspan is correct that the Fed does not directly manage long-term rates, it remains true that a main influence on long-term rates is that quantity of money and credit in the economy, a variable that the Fed can directly control through its management of short-term rates. To say otherwise is like claiming that bathroom flood isn’t your fault, since you only control the faucet, not the height of the water in the tub. FULL ARTICLE