To prick or not to prick: that is the question.
Alan Greenspan, former Fed chair, in full soliloquy mode speaking today …
- Greenspan says it is appropriate to tackle asset bubbles if they are financed by leverage, but to leave them alone if not
He used the 1987 stock market as an example, saying:
- “Bubbles are aspects of human nature and you can try as hard as you like, you will not alter the path”
- “I still hold to the general view that unless you have debts supporting the bubble, I would just let it alone because certain things about human nature cannot be changed and I’ve come to the conclusion this is one of them.”
Says its better to just clean up afterwards. On the other hand, though, if a bubble is caused by leverage …. then it calls for a different policy prescription – i.e. pre-emptive central bank action to prick the bubble.
Comments are open for what do you think? Greenspan – right or wrong? (Try not to get irrationally exuberant down there)
Link for more: Greenspan Says He Would Pre-Empt Asset Bubbles Financed by Debt
