Since retiring as Federal Reserve Chairman in 2006, Alan Greenspan’s reputation has gone from hero to goat.
Many experts say his loose monetary policy was to blame for the real estate bubble of 2001-2006.
Not surprisingly, Greenspan disagrees.
He says that in 2002, the relationship between the federal funds rate, controlled by the Fed, and mortgage rates broke down.
"Mortgage rates started moving down six months before we lowered the fed funds rate," Greenspan told Fortune magazine.
The housing bubble was global, Greenspan notes.
It’s difficult to argue that the Fed’s interest rate policy could set off housing bubbles around the world, he says.
Greenspan attributes the housing boom to a glut of savings around the world, as China and other emerging markets shifted to capitalism.
All that capital naturally sent interest rates lower worldwide, so the Fed’s policy was of little consequence, Greenspan says.
Not everyone agrees.
"There is actually no evidence for a global saving glut," Stanford economist John Taylor told Fortune.
As a percentage of global GDP, saving and investment have been on a downward slope since the early 1970s, he notes.
John Tamny, senior economist at Wainwright Economics, says a weak dollar was responsible for the housing boom.
“Housing is a great place to be when currencies are in decline, and just as they did in the high interest rate 1970s, Americans rushed to housing to hedge the dollar's decline” this time around, he wrote in Forbes.
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