J Taylor''s Gold Tech Stocks newsletter interviews Blanchard CEO Don Doyle

8:04p ET Sunday, January 4, 2003

Dear Friend of GATA and Gold:

Great minds probably soon will be dissecting the speeches
given Saturday at the conference of the American Economic
Association in San Diego by Federal Reserve Chairman
Alan Greenspan and Fed Governor Ben Bernanke. These
guys approach the truth in public only indirectly, but
maybe the key remark Saturday was Greenspan's
congratulating his central bank for having gotten away
with running U.S. interest rates down so low for so long
rather than pop the U.S. stock market bubble by raising
rates, which might have popped the U.S. economy too:

quot;There appears to be enough evidence, at least tentatively,
to conclude that our strategy of addressing the bubble's
consequences rather than the bubble itself has been
successful.quot;

Exactly how has the Fed been quot;addressing the bubble's
consequencesquot;? Greenspan wasn't so clear about that,
but GATA might suggest that it has been accomplished
by surreptitious intervention in other markets, as by
suppressing the gold price through central bank gold
leasing and derivatives and suppressing long-term
interest rates and certain commodity prices through
derivatives. This might explain why Greenspan has opposed
greater regulation of derivatives -- for such regulation
and the publicity that would come with it might send the
Fed back to influencing the economy by conventional
monetary means.

In any case, Greenspan's remark about quot;addressing
the consequencesquot; does seem to acknowledge more or
less the central bank's intent to intervene
unconventionally all over the place. See what you
think.

The full text of Greenspan's speech can be found here:

a href=http://www.federalreserve.gov/boarddocs/speeches/2004/20040103/defaultht...
.htm

The full text of Bernanke's speech can be found here:

a href=http://www.federalreserve.gov/boarddocs/speeches/2004/200401033/defaulht...
t.htm

And a very good Reuters story about the San Diego
conference is appended.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Greenspan Defends Stock Market Bubble Policy

a href=http://www.reuters.com/newsArticle.jhtml?http://www.reuters.com/newsArti...
type=businessNewsamp;storyID=4068885

By Kevin Krolicki

SAN DIEGO, Jan. 3 (Reuters) -- U.S. Federal Reserve Chairman
Alan Greenspan said on Saturday that policymakers have been
proven correct in their decision not to try to prick a 1990s
stock-market bubble that subsequently broke on its own.

quot;There appears to be enough evidence, at least tentatively, to
conclude that our strategy of addressing the bubble's
consequences rather than the bubble itself has been
successful,quot; Greenspan told the annual meeting of the
American Economic Association in San Diego, Calif.

Greenspan cited the quot;exceptionallyquot; mild nature of the
eight-month 2001 recession despite a series of shocks to
the economy that included plunging stock prices, the Sept.
11 attacks, corporate scandals and wars in Afghanistan
and Iraq.

In defending the Fed's tactics, Greenspan said if the Fed
had stepped in to curb stock prices by raising rates, it might
have done damage to the entire economy in the process.
Stock prices collapsed in early 2000, wiping out trillions of
dollars of investors' wealth.

Now in his 17th year as chief of the U.S. central bank,
Greenspan stressed that sound policymaking requires
judgment and can be helped, but not fully guided, through
simple rules. He said the U.S. economy's resilience and
ability to quickly adapt had also increased its ability to
weather adversity.

quot;Much of the ability of the U.S. economy to absorb these
sequences of shocks resulted from notably improved
structural flexibility,quot; Greenspan said in a relatively
academic address. quot;But highly aggressive monetary ease
was doubtless also a significant contributor to stability.quot;

He said the idea that the Fed could have brought the 1990s
stock bubble to a gentle decline by ratcheting interest rates
up -- as some critics have suggested it should have done --
quot;is almost surely an illusion.quot;

In a question-and-answer period later, Greenspan said
policymakers could have halted the rise in stock prices by
hiking interest rates until it happened, quot;but it would bring
the whole economy down with it.quot;

The Fed chief made no comment about current U.S.
economic conditions and offered no hint about how soon
U.S. central bank policymakers might move interest rates
up from 45-year lows in the face of mounting evidence of a
broad-based pickup in U.S. economic activity.

Building on a theme he addressed last August at a Jackson
Hole, Wyo., conference, Greenspan said policymakers had
to choose between a variety of possible events in setting a
course for interest rates.

quot;A central bank needs to consider not only the most likely
future path for the economy but also the distribution of
possible outcomes about that path,quot; he said. He said such
judgment was a factor in the Fed's decision to take a low
interest-rates stance to limit the risk of deflation, a
potentially dangerous fall in consumer prices, even though
such an outcome did not appear to be in the cards.

quot;Such a cost-benefit analysis is an ongoing part of monetary
policy decision-making and causes us to tip more toward
monetary ease when a contractionary event ... seems
especially likely or the costs associated with it seem
especially high,quot; he said.

The Fed lowered interest rates by a whopping 4-3/4
percentage points in 2001 after the stock market's collapse
and the Sept. 11 attacks, and by another three-quarters of
a percentage point by the end of June 2003 to the current
1 percent, the lowest rate since 1958.

In a reference to inflation-targeting regimes used by some
other countries' central banks, though not the Federal
Reserve, Greenspan suggested they could not replace a
solid record of sound policy guided by judgment.

quot;As yet unresolved is whether the mere announcement that
a central bank intends to engage in inflation targeting
increases the credibility of the central bank's inclination to
maintain price stability and, hence, assists in the anchoring
of inflation expectations,quot; he said.

In a separate address, Fed Governor Ben Bernanke -- who
has argued in the past that it would be useful for the Fed to
set a specific inflation target -- said it might make the
economy more efficient.

quot;A potential advantage of having an explicit objective for
inflation in particular is that it may help to anchor the public's
expectations,quot; Bernanke said. Many economists say
unswerving expectations among the public about future
inflation helps contain and control the pace of price rises.

In response to a question, Bernanke said an abundance of
slack in the labor market, where upward of 2-1/2 million
factory workers have lost their jobs in the past three years,
was helping keep a damper on price rises.

quot;On that basis I think that inflation is going to remain
contained for some time,quot; Bernanke said. Muted inflation
may deter the Fed longer from raising rates, despite signs
a broad-based economic recovery is taking shape.

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----------------------------------------------------

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