Fed chairman Alan Greenspan addressed an International Monetary Conference in Beijing on Tuesday and had much to say about low long-term interest rates, Chinese yuan revaluation and other issues.
Greenspan gave the speech via satellite from Washington and U.S. debt prices rallied as the chairman left open possibilities of pause in Fed interest rate hikes. He spent a fair amount of time addressing the long-term interest rates not just in the U.S., but also in many other parts of the world.
He said essentially he wasn’t entirely sure what was happening with interest rates. He said it could be a warning sign of weakness in economies in the future but that was one possibility because the worldwide economies were changing dramatically and rapidly.
“One prominent hypothesis is that the markets are signaling economic weakness,” said Greenspan. “This is certainly a credible notion. But periodic signs of buoyancy in some areas of the global economy have not arrested the fall in rates.”
He listed several other possibilities including the breakdown of the former Soviet Union as well as the possibility of pension fund problems in developed countries.
Another major point of contention remains the Chinese Yuan. The Chinese government pegs the yuan very tightly to the U.S. dollar. Many, including the Bush administration claim this is a primary reason for the massive trade deficits with China. The White House has been pressuring China to revaluate their currency to help even things up a bit. China has been hesitant.
Greenspan recommend China revaluate their currency but it had nothing to do with the White House assertions. He maintained revaluation would have little effect on the U.S. trade deficit but it would help China be more flexible in their economy, particularly as the world economy shifts in ways unknown.
“The economic and financial world is changing in ways that we still do not fully comprehend. Policymakers accordingly cannot always count on an ability to anticipate potentially adverse developments sufficiently in advance to effectively address them. Thus our economies require, in my judgment, as high a degree of flexibility and resilience to unanticipated shocks as is feasible to achieve. Policymakers need to be able to rely more on the markets’ self-adjusting process and less on officials’ uncertain forecasting capabilities.”
John Stith is a staff writer for Murdok covering technology and business.
