Former US Federal Reserve chairman Alan Greenspan said the US may be doing too little to repair its financial system and promote an economic recovery.
US President Barack Obama on Tuesday signed into law a US$787 billion economic stimulus package of tax cuts and increased spending. He has also pledged to use the bulk of the roughly US$315 billion left in the bank bailout fund approved by Congress last October to revive the battered financial industry.
“The amount of money in both these pots may not be enough to solve the problem,” Greenspan said in an interview before a speech on Tuesday to the Economic Club of New York.
The comments highlight the difficulties Obama faces in fighting the steepest recession in a generation. The economy contracted at an annual pace of 3.8 percent in the fourth quarter of last year, the most since 1982.
In the speech, the former Fed chairman said: “What we are currently going through is a once-in-a-century type of event. It will pass.”
Greenspan, who now heads his own Washington-based consulting firm, warned that the positive impact of the stimulus package on the economy would peter out if the US failed to fix its financial system.
“Given the Japanese experience of the 1990s, we need to assure that the repair of the financial system precedes the onset of any major fiscal stimulus,” he said.
The Obama administration last week laid out a multipronged plan to aid the banks, drawing on the remaining money in the US$700 billion Troubled Asset Relief Program (TARP). Greenspan said that wouldn’t be enough.
“To stabilize the banking system and restore normal lending, additional TARP funds will be required,” he said.
The 82-year-old economist also stressed the importance of halting the decline in house prices that is battering banks.
“Until we can stabilize the asset side of bank balance sheets, this crisis will not come to a close,” he said.
Home prices in 20 US cities fell 18.2 percent in November from a year earlier, the fastest drop on record, the S&P/Case-Shiller index showed.
“Unfortunately, the prospect of stable home prices remains many months in the future,” Greenspan said in his speech. “Many forecasters project a decline in home prices of 10 percent or more from current levels.”
Greenspan estimated the collapse in housing, coupled with the steep drop in global equity prices, had wiped out more than US$40 trillion of wealth, equivalent to two-thirds of last year’s global GDP.
Responding to questions after the speech, Greenspan blamed insufficient regulatory oversight in part for failing to recognize the degree of risk that was accumulating in the banking system.
“The regulatory structures, especially internationally, were way behind the curve,” he said.
Greenspan said he was skeptical that officials can adopt a policy that prevents asset bubbles from forming without harming other parts of the economy.
To help resolve the banking system’s problems, financial institutions may need higher capital reserves to help restore them to health, he said.
A Chinese freighter that allegedly snapped an undersea cable linking Taiwan proper to Penghu County is suspected of being owned by a Chinese state-run company and had docked at the ports of Kaohsiung and Keelung for three months using different names. On Tuesday last week, the Togo-flagged freighter Hong Tai 58 (宏泰58號) and its Chinese crew were detained after the Taipei-Penghu No. 3 submarine cable was severed. When the Coast Guard Administration (CGA) first attempted to detain the ship on grounds of possible sabotage, its crew said the ship’s name was Hong Tai 168, although the Automatic Identification System (AIS)
An Akizuki-class destroyer last month made the first-ever solo transit of a Japan Maritime Self-Defense Force ship through the Taiwan Strait, Japanese government officials with knowledge of the matter said yesterday. The JS Akizuki carried out a north-to-south transit through the Taiwan Strait on Feb. 5 as it sailed to the South China Sea to participate in a joint exercise with US, Australian and Philippine forces that day. The Japanese destroyer JS Sazanami in September last year made the Japan Maritime Self-Defense Force’s first-ever transit through the Taiwan Strait, but it was joined by vessels from New Zealand and Australia,
CHANGE OF MIND: The Chinese crew at first showed a willingness to cooperate, but later regretted that when the ship arrived at the port and refused to enter Togolese Republic-registered Chinese freighter Hong Tai (宏泰號) and its crew have been detained on suspicion of deliberately damaging a submarine cable connecting Taiwan proper and Penghu County, the Coast Guard Administration said in a statement yesterday. The case would be subject to a “national security-level investigation” by the Tainan District Prosecutors’ Office, it added. The administration said that it had been monitoring the ship since 7:10pm on Saturday when it appeared to be loitering in waters about 6 nautical miles (11km) northwest of Tainan’s Chiang Chun Fishing Port, adding that the ship’s location was about 0.5 nautical miles north of the No.
SECURITY: The purpose for giving Hong Kong and Macau residents more lenient paths to permanent residency no longer applies due to China’s policies, a source said The government is considering removing an optional path to citizenship for residents from Hong Kong and Macau, and lengthening the terms for permanent residence eligibility, a source said yesterday. In a bid to prevent the Chinese Communist Party (CCP) from infiltrating Taiwan through immigration from Hong Kong and Macau, the government could amend immigration laws for residents of the territories who currently receive preferential treatment, an official familiar with the matter speaking on condition of anonymity said. The move was part of “national security-related legislative reform,” they added. Under the amendments, arrivals from the Chinese territories would have to reside in Taiwan for
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