Travis

Greenspan's Latest: Oil Boom Will Likely 'Go on Forever'

One more thing. Even with long term rates as low as they are, you will still have foreign governments and other entities purchasing them simply for the fact that the dollar is the most widely used currency (especially for oil) and the bonds are backed by the strongest economy in the world.

Now I agree there is a fear that if our dollar devaules too much, or our economy starts really slipping, then we risk having oil be exchanged in euros or something else, and governments selling off our bonds... But with the amount of treasuries other countries (China for instance) have, they wont want to do any massive sell offs and lower the price of the asset they are holding onto... at least thats what we can hope for!

Greenspan's Latest: Oil Boom Will Likely 'Go on Forever'

special1person: throw that mumbo jumbo out the window. Greenspan rose rates to slow the economy prior to the bubble bursting. Then the lowered them after the burst and 9/11 to spur the economy which was about to go into panic mode. Read his book, he clearly didn't want to nor follow every presidents wishing regardless of party association.

fxtrader07: I completely agree that the Fed and the Chief are very powerfull people in domestic and due to the factor of our economy being "number 1" world economics. I just feel that a lot of the results of monetary policy decisions and the reasons for any policy changes are somewhat out of the hands of the Fed and our economy.

Globalization has made it much more diffuclt for our monetary policy to be as effective. Sure, the Fed has done its work to manipulate long term rates, but the fact that so many good and services are produced over seas by cheaper labor has kept global inflation low. Until the world maximizes out on using its cheap resources, inflation should remain low (in comparison to ultra-high inflation experienced in the 70s-80s, or in other countries).

I agree that inflation is terrible. And I also think its pretty silly to not include energy or food in a "core" cost of inflation. Especially energy since higher energy costs get passed onto consumers in the "core" products. But by having as much cash in the world, by having so much liquidity, helps us weather recessionary storms - people and institutions still have cash to invest and make purchases. I guess I don't see the amount of money infused into the system as evil as you do.

Another note on inflation, a lot of the food inflation (wheat for example) is due to shortages in supply, not just the declining dollar. And while I believe a declining dollar is bad in the long run, it will help reduce our trade deficiets right now. Everything works in cycles.

Greenspan's Latest: Oil Boom Will Likely 'Go on Forever'

Is it human nature that people try to put the blame of current problems onto one person or item? Greenspan does not deserve this blame, and I agree with "NY EE," this article is poorly written.

As "NY EE" points out, an ARM does not equal sub-prime. There are many types of adjustable rate mortgages and they aren't evil. His statement is correct, you can usually save money when short term rates are lower than long term.

Most ARMs are fixed for a period of time (3,5,7,10 years). So for the majority who got an arm in the 3 or 5 year fixed range, the changes in the federal funds rate did nothing to them. Also, many if not most ARMs are tied to the Libor and not treasury indicies... while libor tends to follow treasuries, it doesn't all the time.

About technology: Greenspan praises the way in which technology affects global commerce as well as how the technology sector offers a lot of room for economic growth. He did not however believe all the hype of these over-valued stocks. Also, Greenspan hiked up the funds rate prior to the bubble bursting as he was trying to slow down the unprecidented growth (to curb possible inflation, and keep markets from acting too exuberant in any direction).

Regarding a real estate bubble. Yes, the lowering of interest rates (which was necessary following the tech burst and 9/11) made home financing cheaper and helped to create the bubble. But our economy was also in a panic after those two events, and we needed something. Besides that, even though the federal funds rate was raised from '04 - '07 long term interest rates still remained low - to the surprise of almost everyone. This kept financing cheap, and if the Fed can only raise rates (or inject/retract money) and long term interest rates still remain low, then it isn't all their fault.