Was Alan Greenspan really powerless to stop the stockmarket bubble?
EVERY August central bankers and economists gather in the Rocky Mountain resort of Jackson Hole, Wyoming, for the annual symposium of the Federal Reserve Bank of Kansas City. This year Alan Greenspan, chairman of the Federal Reserve Board, used the opportunity to give his fullest defence yet against charges that he should have raised interest rates in the late 1990s enough to prick the stockmarket bubble before it got too big. The Fed, like other central banks, takes account of rising asset prices (shares or property) to the extent that they boost spending and hence future inflation. Yet a financial bubble can inflate even when inflation in goods and services remains low. And when a bubble bursts, it may cause severe balance-sheet strains—of the kind now showing in America. Mr Greenspan offers two defences for failing to respond to the bubble. First, he argues that it was impossible to be certain that the rise in share prices in the late 1990s really was a bubble until after it had bur
