Alan Greenspan Replacement - The Best Choice

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SouthAmerica: The replacement to Alan Greenspan as Fed Chairman can’t be a business as usual type of economist. They will need someone who thinks outside the box such as Stephen Roach.

Alan Greenspan’s story as Fed Chairman it is similar to the Captain of the “Titanic” with a new twist – only minutes before the ship is supposed to hit the “Iceberg” - he ends his tenure as the ship’s captain, and he pass the ships responsibilities to a new captain right before the crash.

At this point, the Bush administration has made such a mess of everything that I am not sure that even an economist with Stephen Roach’s qualifications and insights can prevent this “Titanic” from crashing very hard against the “Iceberg”.

The successor of Greenspan will have to deal with a bunch of major economic problems converging into a “Perfect Storm” – it will not be a pretty picture. Only an economist with the skills and balls such as Paul Volcker will have a chance to minimize the damage - and Stephen Roach might be that economist.

Quoting from my article published on April 2003 - “The Art of Deception.”
“…The Bush administration might be perceived as a loose canon by the rest of the world, but the reality is that the Unite States has profound vulnerabilities. There is, for example, an oversupply of US Dollars circulating outside the United States, which might prove to be the Achilles heel of the US economy. There is also the fact that the US needs to borrow, from foreign sources, about $500 billion dollars per year, to keep its economy from sinking—like the Titanic.

The United States depends on foreign money, to keep itself afloat. In other words, the rest of the world has the power to pull the plug in the US economy, at any time in the future.”

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Toc: Robert Rubin the former treasury secretary is the best choice.


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SouthAmerica: I agree with you Robert Rubin the former treasury secretary did an outstanding job. But today, he would be my second choice for the job.

The one thing that differentiates Stephen Roach from the rest of the pack it is his deep understanding of how outsourcing is affecting the US economy. He knows that outsourcing will have other implications to the US the future of the US economy other than save few bucks today.

Stephen Roach has traveled in the main countries of Asia and he has seen first hand what is happening economically on these countries. He is in a better intellectual position, since he has a better understanding of the competition that the US will have from the other countries from around the world. He understands better than anyone else the type of competition that the US economy will have in the coming years from China and India.

The US buys all kinds of things from countries around the world – China being the biggest exporter to the US. In the other hand the biggest exporting item from the US to emerging markets around the world it is good paying American jobs.

Stephen Roach knows that there is other things at play in the outsourcing game that will have a long-term adverse impact in the US economy.

But again in Wall Street - long-term and the future means the next quarterly report.

As Fed Chairman Stephen Roach will be able to put in practice his know how and skills as an economist and he can become another legend such as Paul Volcker.

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August 29, 2005

SouthAmerica: In a nutshell here are two articles that I wrote that explain the economic scenario that Stephen Roach will find when he becomes the next Fed Chairman.

On February 17, 2005, and on March 8, 2005 I posted a copy of my articles on my blog - these articles had been published in various newspapers and magazine at that time – you can find a copy on the following locations:


1) About the US economy in the coming years.
http://firstgreatdepressionofnewmillennium.blogspot.com/


2) About the long-term impact that outsourcing will have on the US economy.
http://outsourcingandthedollar.blogspot.com/

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SouthAmerica...

Excellent commentary as usual...

Warren Buffett has also mentioned the derivative risk...with respect to Fannie Mae...Ginnie Mae...etc..

Do you have information that clarifies this risk ?...Where it is...what it is...etc...? Remics...strips...optioned out etc...

Furthermore...do you have information which would clarify just how Bush and Cheney are profiting from the Iraq war and oil...?

In my estimation...the US Government offices are just used as some form of financial enhancement to most individuals that are in office...Secondly..they are used in an illegal but legal fashion...

How can it be that billions of dollars are now being collected as a result of the Iraq war..and rising oil prices...some of which will handily find their way to Bush and Cheney in the near future...and not be conflicting....???

Who is policing the police??? Or has the capability to police the police ???

To me..the problem is that the government office pays so much less than the other side..that one never seeks to be in office for anything but what would normally be conflicts of interest...
 
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SouthAmerica: This evening when I was reading Paul Krugman’s column on The New York Times - “Greenspan and the Bubble” – I was happy to see that one of my favorite economists, and a future Economics Nobel Prize winner, did agree with a lot of things that I have been writing about.

Here I am quoting a portion of Paul Krugman’s column on the NYT of August 29, 2005:

“Regular readers know that I have never forgiven the Federal Reserve chairman for his role in creating today's budget deficit. In 2001 Mr. Greenspan, a stern fiscal taskmaster during the Clinton years, gave decisive support to the Bush administration's irresponsible tax cuts, urging Congress to reduce the federal government's revenue so that it wouldn't pay off its debt too quickly.

Since then, federal debt has soared. But as far as I can tell, Mr. Greenspan has never admitted that he gave Congress bad advice. He has, however, gone back to lecturing us about the evils of deficits.

… There are signs that the housing market either has peaked already or soon will. And it will be up to Mr. Greenspan's successor to manage the bubble's aftermath.

How bad will that aftermath be? The U.S. economy is currently suffering from twin imbalances. On one side, domestic spending is swollen by the housing bubble, which has led both to a huge surge in construction and to high consumer spending, as people extract equity from their homes. On the other side, we have a huge trade deficit, which we cover by selling bonds to foreigners. As I like to say, these days Americans make a living by selling each other houses, paid for with money borrowed from China.

… Sorry, but no. A housing slowdown will lead to the loss of many jobs in construction and service industries but won't have much direct effect on the trade deficit. So those jobs won't be replaced by new jobs elsewhere until and unless something else, like a plunge in the value of the dollar, makes U.S. goods more competitive on world markets, leading to higher exports and lower imports.

So there's a rough ride ahead for the U.S. economy. And it's partly Mr. Greenspan's fault.”


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SouthAmerica: Reply to Libertad

I will answer your question regarding derivatives on a new tread about “North Korea” that I will post later tonight on the Chit Chat forum. (most likely they will delete that posting anyway.)

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October 22, 2005

SouthAmerica: Here are the latest speculations about Alan Greenspan’s replacement as Fed Chairman.

I don’t agree with either pick made by the major business/economics magazines at this time. It is time to think “outside the box,” and not as - business as usual.

The best candidate for the job at this time is Stephen S. Roach - (Chief Economist and Director of Global Economic Analysis at Morgan Stanley's Global Economics Team)

In my opinion the most qualified economist in the United States today, for the job of chairman of the Federal Reserve is Mr. Roach. He has a better understanding and grasp of many issues related to the global economy better than anyone that I know of. He is the best candidate for the job.

He is the best person in terms of qualification and practical experience to replace Alan Greenspan. Mr. Roach has a deep understanding of how outsourcing affects the US economy, the global economy, and also the job market in the US.

I don't know why Mr. Greenspan has been “Canonized” by just about everybody. He has been elevated to a category worthy of sainthood.

In my opinion it is too early to decide on Mr. Greenspan’s legacy – Let’s talk about that twenty years from now after the dust settles – and not today.

In my opinion, there’s only one real legendary Fed Chairman up to this point and his name is Paul Volcker.


Why Stephen S. Roach is not on anyone's list of people being considered to replace Alan Greenspan as Fed Chairman? He has the potential to become the new - Paul Volcker.



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“The Economist”
The Economist magazine of Oct 15th - 21st , 2005 made Mr. Greenspan a cover story.
The cover article: “A Hard act to follow” – Who should succeed Alan Greenspan?

Then, The Economist go on and they endorsed Don Kohn, a governor on the Federal Reserve Board, as the replacement for Alan Greenspan.

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Financial Times of London - Oct 19, 2005
”The lessons and challenges for Greenspan's Fed replacement “
By Martin Wolf
Alan Greenspan is the pre-eminent central banker of our era. So, too, have improved institutions, particularly the...


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Business Week - OCTOBER 21, 2005
By Rich Miller
Better Odds for Some Fed Chief Hopefuls?
A trio of Hoover Institution economists may be stronger contenders to succeed Alan Greenspan than Washington insiders realize


As the White House has stepped up its search for a successor to departing Federal Reserve Chairman Alan Greenspan next year, Administration officials haven't been shy about asking outsiders for advice. "Part of the process is to reach outside the White House and solicit opinions," President Bush told reporters on Oct. 4.

One outsider whose views are likely to carry considerable weight, people inside and outside the Administration agree, is George Shultz, now a distinguished fellow at the Hoover Institution think tank in California. The 84-year-old Shultz has served in a variety of government posts, including as Treasury Secretary and Secretary of State, and is a de facto eminence grise for the Republican Party.

INSIDE TRACK? There are some important implications in Shultz's role in the search for a successor to Greenspan. A trio of Hoover economists -- Michael Boskin, John Taylor, and the less well-known John Cogan -- may have a stronger chance of nabbing the job at the Fed than is widely perceived by Washington pundits, insiders suggest. All of them are now Shultz's colleagues.

The real dark horse may be Cogan. His expertise is in budgetary, not monetary, economics, and he's not particularly well-known on Wall Street. But Cogan, 58, is close to Bush. He twice turned down offers to join the Administration as budget director but could find the offer of the Fed job more enticing.

The 67-year-old Taylor is the author of the Taylor rule, a mathematical equation that ties the Fed's interest rate moves to changes in unemployment and inflation. A well-respected monetary economist, he was once considered a leading candidate to take over at the Fed. But his star faded after he failed to impress Wall Street in the four years he spent as Treasury Undersecretary for International Affairs in Bush's first term.

VEEP'S INFLUENCE. Boskin, 60, was chief White House economist during the term of the first President Bush and was a member of the President's economic-advisory team in the 2000 election campaign. He's close to Vice-President Dick Cheney, who Administration insiders say is playing a key role in the hunt for a Greenspan successor. In March, Cheney attended a lavish 60th birthday party that Boskin threw for his wife at the Asian Art Museum in California.

Some insiders say Boskin has never really hit it off with the younger Bush, however. Indeed, a few Bushies still grouse about Boskin's behavior in the closing days of the elder Bush's Presidency, complaining he seemed to be more concerned about the future of his own career than that of the Commander-in-Chief.

As the search for a Greenspan successor enters into the final weeks, speculation is swirling about whom Bush will nominate the post. Given Bush's proclivity to surprise the pundits -- and Shultz's behind-the-scenes role in the process -- the Hoover crowd may well stand a chance.


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It is funny to see people making Alan Greenspan a "saint", and yet he became Fed Chairman, plenty of people were scared that he isn't half as good as Volcker. I remember the bond market had a giant drop after Greenspan was confirmed.

I doubt Roach will get the nod, he is widely viewed as "bearish", almost a "doom sayer" on a consistent basis. I agree that his cynical view of the "New Economy" eventually proven to be correct, but I don't think he has the political savvy of Greenspan and will run into public image problems rather quickly. Greenspan's reputation is largely based on his ability in calming the public, and he as done a great job.

Rubin will be a fabulous choice, he is calming (quite like Greenspan) and has a great reputation. But somehow I doubt he will want the Feb job after his recent repeated indication that he is done with his career.

Of 3 person named in the article, I dislike Boskin the most, look up some of his speeches at the end of the Sr Bush term. He is clearly the most political, and people were worried that Greenspan wasn't independent enough back when he got nominated (!!).
 
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Rufus-4000: I doubt Roach will get the nod, he is widely viewed as "bearish", almost a "doom sayer" on a consistent basis. I agree that his cynical view of the "New Economy" eventually proven to be correct, but I don't think he has the political savvy of Greenspan and will run into public image problems rather quickly.


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SouthAmerica: Wall Street does not like when there is someone like Paul Volcker increasing interest rates trying to control inflation or some other problem in the US economy - on Volcker's particular case he had to tame the "hyperinflation" caused by the years of military spending related to the Vietnam War.

Today we need a Fed Chairman from the same mode that Paul Volcker came from. We need someone with guts to do the right thing - which will be very unpopular in Wall Street.

US government borrowings from the rest of the world - is today's main problem related to the future of the US economy - or before you know we will have a melting US currency in world markets. The US can't go on borrowing year after year around 90 percent of the savings of our entire planet without major negative consequences to the US in the future.

I am sure that Stephen S. Roach would have the balls to address that problem, by increasing interest rates in the US until economic activity went back into equilibrium and made sense for the long-term.

If we get another business as usual type of Fed Chairman the US will be in big trouble in the future.

The next Fed Chairman will have to deal and understand very well the Asian economies, markets, and their Central Bankers - and Stephen Roach understands very well these important variables that will affect in the future the American economy in many ways - as never before.

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Excellent Commentary.....

The US and the world needs what would be considered a ¨normal and healthy economy¨....

Thus what is a normal and healthy economy...?

A normal and healthy economy effectively rewards work and balance...A person works for food..clothing..shelter..and family..

The US has a zero savings rate because interest rates were forced artificially low...and there was/is no reward for savings...

Now there is a huge segment of the population that does not have the possibility of saving money in time for what would be a normal retirement with regards to ones work...

Other reasoning involves implementing commerce with other governments and economies which are not the same...The effects of dealing with an unbalanced trading counterpart is not felt in the near term...and the cost of this is born by the unsuspecting....

There is a growing unrest of have nots in China which are footing their cheap labor...If communism can stay in place...the labor will stay in its place..as it has in Cuba....It will not be until labor is paid similarly to the labor in the US ..that a more normal economy can exist in the US...

Other possibilities would be a rapid rise in the Yuan...This could quickly more normalize both the US and Chinese economies...

The US is quickly moving to more ¨have nots¨...but is still many times stronger because of access to assets....even though they are not fully owned...

A simple way to view normality would be reflective of an average optimal savings amount with regards to a lifetime of labor...that yields a satisfactory amount whereby the worker can live a comfortable retirement....

Now...in the US...$1,000,000 in cash would yield less than $2000 per month before any taxes....and less than 1/10 of 1% have this capital in cash.... The approximate low monthly number would be approximately $4-$5,000 per month.....

Whoever is put at the economic helm should keep this in mind....
 
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