ALAN Greenspan, chairman of the US Federal Reserve, is a “bigger threat to the US economy than Osama bin Laden”, according to a leading Scottish investor.
Osama bin Laden founded the militant Islamist organisation al-Qaeda and masterminded the 11 September 2001 terrorist attacks on the World Trade Center in New York and the Pentagon in Washington, D.C.
The claim comes from Robin Angus, director of the £150 million Personal Assets Trust and adviser to Edinburgh University’s Centre for Financial Markets Research. Angus accuses the Fed chairman of pumping too much liquidity into the US economy.
He said: “Greenspan’s interest rate policy has suspended reality and driven all asset prices into bubble territory. There are plenty of pins on hand to prick the bubble. A rise of only 1 per cent in the required real rate of return on financial instruments would cause a fall in equity markets of over 30 per cent.”
Angus also warned that inter-dependence between the Far East and the US – by which Asian countries sell goods to the US, as they lend billions to support its twin deficits – could have two outcomes. “A massive fall in the dollar, or a significant recession in the US as the consumer’s increased indebtedness bites.”
The Fed reduced interest rates six times in 2001-02, cutting the overnight bank lending rate to 1 per cent from 6.5 per cent. Angus said: “Fearing on a number of occasions between 1997 and 2001 that the market was about to catch cold, Greenspan kept pumping liquidity into the system . . . the market got roaring drunk.”
Writing in the latest PAT Quarterly, Angus said Greenspan had been wrong to intervene as often. “The market never got a chance to right itself,” he stated.
Last week Quantum fund founder George Soros said Greenspan had lost credibility by taking US rates so low and by endorsing Bush’s tax cuts.
Greenspan has been widely praised by other commentators. Laurence H Meyer, a former Fed governor, said that “there has been a tremendous increase in transparency” which “contributed to good monetary policy”.
This article was published in the Sunday Herald on 6 February 2005
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