WASHINGTON - FORMER Federal Reserve Chairman Alan Greenspan criticises President George W. Bush's administration in his memoir for putting political imperatives ahead of sound economic policies, The Wall Street Journal reported on Friday. Under President Bush, the 'political operation was far more dominant' than in the White House of former President Gerald Ford, whom Mr Greenspan served as a top economic adviser, the former Fed chief said, according to the paper. The Journal said it bought the book in a New York bookstore. Mr Greenspan's memoir is scheduled for release on Monday.
'Little value was placed on rigorous economic policy debate or the weighing of long-term consequences,' Mr Greenspan writes of the Bush administration.
Mr Greenspan said he unsuccessfully urged the White House to veto 'out-of-control' spending bills while the Republicans controlled Congress. Republicans 'deserved' to lose control of Congress in last year's election because they 'swapped principle for power,' he said.
Mr Greenspan's congressional testimony in favour of tax cuts during the early part of the Bush administration has been criticised by some for giving the green light to Congress to approve the president's fiscal policies.
The former Fed chief has subsequently said Congress ignored his recommendations it accompany any substantial tax cuts with safeguards to protect against future deficits.
Looking at the future of the US economy, Mr Greenspan ominously forecasts that if the Fed is to keep the inflation rate between 1 per cent and 2 per cent in coming years it may need to force interest rates into double digits.
But he said he feared the Fed would face 'populist resistance from Congress, if not from the White House' to its policy of maintaining price stability.
He said if the Fed succumbed to that pressure, the inflation rate could rise to an average of 4 per cent to 5 per cent by 2030, and 10-year Treasury yields would rise to at least 8 per cent with the potential to go 'significantly higher for brief periods,' according to the report posted on the newspaper's Web site.
Offering a defence
The former Fed chief said that as the process of increasing globalisation slows, inflation pressures will reassert themselves. He points to recent increases in the prices of US imports from China and a rise in long-term interest rates as signs 'the turn may be upon us sooner rather than later.' Mr Greenspan, now 81, was chairman of the US central bank from August 1987 until January 2006. He was the second-longest serving chairman in the Fed's 93-year history.
His deft handling of the 1987 stock market crash and international debt crises of the 1990s, and his role in guiding the economy through its longest expansion on record, helped establish his sizable reputation. A book about him by Washington journalist Bob Woodward was entitled 'Maestro.' The native New Yorker, whose owlish demeanour and cryptic utterances appeared simultaneously to bewilder and impress congressional, financial and public audiences, managed to achieve a type of intellectual celebrity status rare in American public life.
At the same time, Mr Greenspan's policies have been criticised by some for inflating the dot-com and housing bubbles. Critics say a long period of low interest rates in the early part of the decade laid the foundation for current problems in housing and credit markets - problems Mr Greenspan's successor at the Fed, Ben Bernanke, is grappling with.
Mr Greenspan defends his policy course in the book, the newspaper said.
'We wanted to shut down the possibility of corrosive deflation,' he wrote. 'We were willing to chance that by cutting rates we might foster a bubble, an inflationary boom of some sort, which we would subsequently have to address.' 'It was a decision done right,' he said.
The release of Mr Greenspan's book comes just ahead of a Fed meeting on Tuesday that is the most closely watched of Mr Bernanke's relatively short tenure.
The Fed is expected to lower the benchmark federal funds rate by at least a quarter-percentage point from 5.25 per cent to help the economy shake off a prolonged housing downturn and credit-market turbulence.
The book makes scant mention of Mr Bernanke, the paper reports, except in a photo caption in which Mr Greenspan says, 'I was very comfortable leaving the post in the hands of such an experienced successor.' -- REUTERS
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