Tuesday, March 20, 2007


In case you hadn't seen it yet, here's my friend Jerry Bowyer's latest piece over at NRO.

Dear Sir/Madam,

I am the former head of the Central Bank of my country. I would like to share with you the riches that I received when I held that very-important post. If you would please wire me $50,000 U.S. as a fee for me to come to your next speaking engagement, I will tell you when to buy puts on your American stock exchanges when a recession is coming. Please reply at your earliest convenience.


A. Greenspan
His Excellency, former Monetary King and Maestro of the Republic of America

Well, it’s not quite as unreliable as a Nigerian 419 scam, but a recession call from Greenspan isn’t exactly bankable, either. After all, if the former Maestro wasn’t able to call recessions when he was running a forecasting firm, we can hardly expect him to do so now. Reportedly, Townsend, Greenspan and Co. predicted only one of the many recessions that occurred between 1954 and 1987. But Greenspan’s record didn’t improve all that much during his two decades at the Fed.

Despite sitting atop an organization with the largest concentration of financial brainpower since Alexander Hamilton sat there alone, Greenspan respectively found himself optimistic before a recession (1990); pessimistic before a great boom (1996, irrational exuberance); optimistic before another recession (2000); and pessimistic before an even-greater boom (2003). While not a bad central banker by any reasonable reckoning, Greenspan always has been an abysmal forecaster. To wit, here’s a passage from the Fed meeting of June 27-28, 2000.

The staff forecast prepared for this meeting continued to suggest that the economic expansion would moderate gradually from its currently elevated pace to a rate around or perhaps a little below the growth of the economy’s estimated potential.

Um, the economy went into a full recession only six or so months after that meeting adjourned. But this nearsightedness doesn’t bother me all that much. Rather, what’s most problematic is the allegiance of some corners of the investing community to the soothsaying abilities of the ex-Maestro — those short-term traders who salivate and/or flinch out of habit every time Alan Greenspan rings a dinner or alarm bell.