I finally found the two letters written to me by Alan Greenspan in 1987. They were written in response to letters that I wrote him at age 24, the year I graduated from U.C. Berkeley (I took two years off to work between my sophomore and junior years.) I was prompted to write based on the Fed’s response to the 1987 stock market crash, which I believed to be a mistake, particularly in light of Alan Greenpan’s own prior criticism of similar Fed policy in the past (Unfortunately I did not save the copies of my letters to Greenspan).
Since Greenspan’s initial reply to me did not really address my concerns, I wrote him again. His second reply is the more revealing. His statement that rather than allowing recessions to correct distortions in the economy, the Fed should attempt to identify and solve the problems creating those distortions set the tone for his entire tenure, and basically provided the playbook followed by both Bernanke and Yellen.
The problem is that Fed policy did not solve, but exacerbated those problems, postponing the consequences of actual solutions to later years.
In the processes the United States experienced a series of ever increasing economic and financial bubbles (including the tech bubble, the housing bubble, and the 2008 financial crisis), went from being the world’s largest creditor to its biggest debtor, amassed a national debt in excess of 19 trillion, a 4.5 trillion dollar Fed balance sheet, suffered a falling standard of living, rising poverty and increased income inequality. Most importantly, these policies will be responsible for the far greater currency and economic crisis that is about to unfold.
Looking back, I’m sure Alan Greenspan secretly wishes he had taken my advice!
