Greenspan: Asset Prices Will Fall

This warning will get some attention. Alan Greenspan says the rise in asset prices in recent years has been driven by a fall in real interest rates, a situation that is abnormal and unsustainable. Eventually asset prices will fall back to normal levels:

Greenspan warns on global asset price fall, Financial Times/Reuters: Former Federal Reserve Chairman Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset prices. Greenspan, speaking to a financial conference in Seoul via satellite, ... said the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums.

“A good part of this expansion is a direct function of the decline in real equity premiums,” Greenspan said. “That cannot go on indefinitely.” He said asset prices would begin to fall, but did not predict when that would happen. “I am reasonably certain that what we are looking at today is an abnormal situation,” he said...

Greenspan also said that "global economic imbalances might improve if some high-growth economies allowed their currencies to strengthen." See this Washington Post story. Note: The Financial Times story (free) has been updated to include Greenspan's comments on Asian currencies.

Comments

[gordon]

And here was I thinking that high asset prices were the result of the liquidity glut that Greenspan talks about. Now I'm told that excessive liquidity will bring asset prices down! What a confusing world!

[ken melvin]

The man ought to know. He's the one who manipulated the whole thing.

[nyuk]

What would you have done differently than Greenspan did? I think that's a fair question after your comment about Greenspan being "...the one who manipulated the whole thing." As if he was the dictator of the Federal Reserve Board and the FOMC. Last I checked, all FOMC actions were the result of votes.

[groucho]

What Greenspan says is that the Central Banks have created(by far) the biggest PONZI SCHEME the world has ever known and that it will soon come to it's end.....when the Central Banks stop creating all of the liquidity(which they have already started to do; ie; ending the liquidity deluge).

Alan Greenspan has to go on the "A" list of all time pyramid scheme promoters. He fits in rather nicely with some of history's greatest, such as John Law and Charles Ponzi.

[nyuk]

What I'm not seeing is anyone's willingness to say what they would have done differently than Greenspan.

What I am seeing are buzzwords like "pyramid" and "Ponzi", mixed with copious amounts of hyperbole.

[anne]

Paying attention to Alan Greenspan has been of signal importance in investing, and as for monetary policy I find minimal fault in Federal Reserve policy these last 25 years. I might have pushed a little for policy that was more stimulatory of employment, but just a little. The question for investors from here is how to be properly cautious as international equity valuations have finally risen again along with real estate valuations. Think value :)

[me]

I really don't need to hear from Greensapn any more than an ex-president. He should shut up for at least a year. Bernanke wouuld probably agree comments from Greenspan are no help.

[nyuk]

I still believe in the First Amendment, which gives Greenspan (and Clinton, and Gore, and Carter, etc...) the same right to free speech that anyone else has. If Bernanke's effectiveness can be so easily limited by a few comments from Greenspan, then maybe Bernanke wasn't the right person for the job.

Anyone who believes that Greenspan's viewpoints aren't helpful is perfectly free to choose their own course.

[ken melvin]

The 'recovery' was based on money borrowed at very low rates. Americans borrowed on home equity and spent the money for consumer goods made in China and other offshores. Since this was the only way to give money away, obviously, there was no demand for capital investment in industrial capacity or technology.

[groucho]

nyuk says "What I'm not seeing is anyone's willingness to say what they would have done differently than Greenspan."

I think we must first understand Greenspan's motives. Depending upon his motives, he's either a hero or a goat.

From his Ayn Rand days we can see that he's anti-state, pro darwinistic capitalism. A quick read of Woodwards "Maestro" reveals that he was definitely a dictator at FOMC meetings. He reminds me of Henry Ford, "you can have any color car you want as long as it's black"

He's also a big time internationalist. He's on the BIS board(BIS...starts and ends with BS), a bilderberger and a trilateralist. He's well connected to push internationalist goals vs national goals. He's also, now pushing for a third political party in the US.(Democrats are too "FDR" and republicans are too neo-con(PNAC))

If this is the case, than he has done a helluva job bringing about a "New World Order". Unfortunately, the american citizen is truly getting the shaft in this global paradigm.

If his motives have been to help americans better their lives, he is an absolute failure. The average american works harder and harder to dig themselves deeper and deeper into a financial catastrophe, that Greenspan has helped engineer. Fooling people into believing that somehow an asset is one day worth x amount, but only a short time later it is worth far more even though the so called asset hasn't changed in any meaningful way.

And of course, now he is going to warn us about the coming disaster that he helped create.

THANKS, AL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Winslow R.]

After hearing so much about the 'twin deficit' theory how about a 'twin glut' theory?

The 'liquidity glut' was the result of low interest rates.

Greenspan is correct that 'bank/nonbank money' is created when nonfinancial assets are monetized. Each asset has an income stream that can be leveraged at higher and higher amounts with lower and lower interest rates.

The 'savings glut' was the result of currency manipulation.

'Fiat money' was created as Asian CB's/gov manipulated currencies by using their own freshly minted currency to purchase another currency to modify exchange rates.

The difference between the two gluts is subtle. The 'liquidity glut' will unwind as incomes fall and interest rates rise. The 'savings glut' unwinds as saving desires and tax policies change.

I see two components to the 'savings glut'. The public component is in the news with CB's/gov actively intervening in currency markets. The private component is tied to the imbalance in wealth that allows a portion of our society to 'save' a large portion of their income in 'unit of account'.

Currently China is being forced (politically) to 'dissave' some of its accumulating reserves. As this shift occurs there will be more U.S. dollars in circulation created by U.S. gov deficits, allowing for increased incomes on U.S. assets. We could also force 'dissavings' by taxing 'savings' of our private sector but politically this is not going to happen.

The question is, will those increases in incomes created by the unwinding of the 'savings glut' keep pace with the fall in incomes on assets as interest rates rise resulting from the unwinding of the 'liquidity glut'?

The twin gluts are not pure mirror images of the twin deficits. The U.S. needs about 8% growth in liquidity each year if GDP is to stay in the 3% - 4% range. As the CA deficit grows the savings glut grows which pulls dollars from circulation, requiring a larger liquidity glut. If the liquidity glut does not grow because of private borrowing, a government deficit is required to create aggregate demand as well as adding fiat dollars back into circulation.

Anyone heard about the 'twin gluts' before :-? You heard it here first :-).

[nyuk]

Groucho, you can blame Greenspan if it makes you feel better. But you still have not offered any specifics about what you would have done differently.

I can't begin to imagine the harmful effects of a completely different approach to monetary policy, particularly given the wreckless fiscal policy of the Bush administration. And why not spread some blame to the CBO for their stunningly inaccurate revenue estimates?

[Daryl K.]

Most of these comments I just read sound like they are coming from a bunch of uneducated children. How many of you grew up investing in the late 70's and 80's. Some of the interest rates I paid (and succeeded in business)where in access of 18%. I feel Greenspan had done an adequate job along with other staff that he works with. They have a tough task. Anyone who fails in this country has nothing to do with Greenspans job. It is a direct link to their choices and opinions based on their education and goals. Remember, this is America and it is located on Earth. It's every man for himself out there. May the best man win!!

[me]

"I still believe in the First Amendment, which gives Greenspan (and Clinton, and Gore, and Carter, etc...) the same right to free speech that anyone else has."

Its not about free speech its about good manners. It is customary for a former president or official to refrain from media for at least a year. You have the right to yell "fire" but not is a closed theatre.

Its called responsibility. As I said, Greenspan screwed up the economy and now I don't need to hear him telling me why its going to fall apart now that he isn't there to protect the world. He is the problem, not the solution.

Somehow I don't recoall hearing Jack Welch run around telling Jeff Immelt how to run GE, or Lou telling Palmisanno how to run IBM. That doesn't make commom sense to you? They have a first amendment right and could but what is the point. They are not in a position to do anything about it.

Greenspan can still mutter his nonsense and move markets. He should go retire and write his memoirs and defend some of his disastrious decisions instead of lecturing the rest of us.

[nyuk]

You're certainly entitled to complain. For what it's worth.

For myself, I'll watch for asset prices to fall. I wish I knew more about what he meant by "real equity premiums".

[anne]

Criticizing Alan Greenspan and monetary policy can actually be quite useful in gaining a clearer sense of direction of the economy. Remember though it was Paul Volker who decisively changed Federal Reserve policy and broke what might have been an inflation cycle. Whether the Fed from there was liberal enough in monetary policy is surely worth arguing about, though a case for too liberal in policy fails for inflation has been cycling lower since 1981.

The question here is whether long term interest rates will increase enough to make current asset prices appear too high to investors. Important :)

Oh, as for fiscal policy suggestions in recent years, Alan Greenspan should be thoroughly criticized. Worrying about a surplus in 2001, was absurd.

[anne]

The question posed by Alan Greenspan is whether valuations of stocks will be found too high if long term interest rates rise much from here. The higher interest rates, the less value there is in current income streams to corporations and the less investors may value stocks. Caution simply means attending to valuation levels when buying, and diversifying, but not trying to time the market.

[nyuk]

I don't have any qualms with criticism of Greenspan. I was just asking for more substance than the others were providing. While the decisions the Fed made were hard in some cases, the choices themselves always seemed to be rather simple to me - raise interest rates, lower interest rates, leave interest rates unchanged...add reserves via overnight repos, or don't...signal future rate moves, or don't.

And as for Greenspan's support of the Bush tax cuts, I thoroughly disagreed with him. And perhaps his support is somewhat to blame for the federal fiscal mess. However, he can never be held primarily responsible for what the Republicans have done to the federal budget situation.

Thanks for adding some substance to the discussion. Always a pleasure to get your viewpoint:)

[calmo]

From 'me'
I really don't need to hear from Greensapn any more than an ex-president.
to you: a large Chairman of the Fed does not just exit quietly.
He does not even ride off into the sunset, horns blowing his magisterial exit. No, before that there are dinner engagements, press releases, personal observations, and with all old men (who we insist must be wise, not demented), their thoughtful predictions.
Take it from me, you young people (Darly K's " bunch of uneducated children") [and you old people who are demented, not mentioning any school teachers that sometimes post here...], so much depends on Mrs Greenspan for letting Bernanke get on with it.

[nyuk]

Anne, aren't we relying on the notion that a company's balance sheet will reflect the true value of that company? How reasonable is it to rely on that? I'm thinking about Enron, Worldcom, etc... In your opinion, was there evidence to refute the value the market saw in those companies before the revelations of book-cooking?

[anne]

Though I always prefer indexes, I thought for a while that Enron was a remarkable success. What bothered me was why Enron should be so much more highly valued by investors than other utilities, for what else was Enron? Same for the comparative value of WorldCom. The valuations made no sense, though we could not have known the income flows were being faked. I thought, well, too expensive. Also, the NYTimes had a lengthy article on the competition to the sky structure of Enron and I remember thinking these folks are nutty. When there is worry, however, look to indexing and I always pay attention to Vanguard's specialty funds and notice how conservative they are.

[me]

"In your opinion, was there evidence to refute the value the market saw in those companies before the revelations of book-cooking?"

Yes there was. If you look today you will see Home depot, IBM, GE dead money because of financial machinations rather than making money the old fashioned way, selling more. These companies spend more time manipulating the financial statements than they do growing the business.

Take IBM, the little they are investing, (I do not count stock buy backs as an investment), is in India, 55,000 employees in the next year or so.

Guess what. I said all along and now the Indian companies are saying, why do we need IBM and its overhead. The startup that used to come in the US will now be in India, and IBM will lose as the Indian businesses cut them out.

It doesn't take rocket science to spot rotten stocks. Take the US markets. Since Bush has been president all we hear are the great tax cuts, business is booming, best economy ever, globalization, rah rah. Then why, if this is such goldilocks environment, why is the DOW the same place it was when Bush took office?

[Robert]

Greenspan said "
the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums

...not to mention a host of other factors conspiring to elevate asset prices.

There HAS BEEN a virtuous circle (from the the perspective of asset price values): persistent negative real interest rates; increased unfunded government expenditure; willingness of neo-mercantilist nations' public sectors & CB's to do the same, coupled with their willingness to re-"invest" undemandingly in US Paper, creates the glut, depresses risk-premia across ALL asset markets (equity and fixed income, real-estate, art etc.) raising prices, exciting feedback-traders & investors who froth & extrapolate gains by investing through their rear-view mirrors, further increasing asset prices and further depressing risk-spreads and real ex-ante risk-premia, all-the-while pushing the boundaries of historical "relative value" comparisons, especially with respect to coincidental benchmarks like income and risk.

Yes, we might be a brave new world where investors behave more rationally, where incomes might rise sufficiently to justify real-estate prices, yes and real growth might accelerate & validate some rise in the ex-ante equity risk premia, and foreign CB "savers" may continue to park (maybe increase increase) the qty of their assets in US paper. But whatever happens in these trends, they will likely be dwarfed by the tendency for real rates to move towards their historically positive norm.

The implication of higher real rates (for those more saguine about risk to asset prices), is that the virtuous circle works, most assuredly, in reverse, and like those before us who've periodically overstepped prudent bounds & been suckered into paying-up for assets when they're overvalued (particularly those who've employed leverage), the losses are often severe.

[pi]

What would I have done differently if I were Greenspan? Let's see . . .
1) I would have raised the brokerage margin rate before the internet crash of 2000.
2) Won't act like a loony by pumping up the money supply worried abut Y2K
3) Won't have bailed out Long Term Capital losers
4) Won't have bailed out Asian liquidity crise of '97 nor the financial mess in Mexico
5) Won't have lowered Fed rate to 1%
Other than that no much.

-pi

[Winslow R.]

Robert wrote:

"The implication of higher real rates (for those more saguine about risk to asset prices), is that the virtuous circle works, most assuredly, in reverse, and like those before us who've periodically overstepped prudent bounds & been suckered into paying-up for assets when they're overvalued (particularly those who've employed leverage), the losses are often severe."

I'd argue so severe that it will not be allowed to happen.

[anne]

Now, a pleasing part of the mandate of the Federal Reserve is that there is a dedication to protecting the strength of the economy. I know then, that in a potential economic crisis the Fed will act as it should to protect the economy and even "me." We can invest with just this knowledge. There are those who for some reason or other think that there must be economic turmoil to have at some point a strong economy; why, I can never understand. Bill Clinton and Robert Rubin along with Alan Greenspan several times worked to prevent turmoil in the economy and markets, such as by helping Mexico or Brazil, limiting the effect of the Asian currency crisis, the bond market damage from Long Term Credit speculation and on. I can imagine no other sound policies, and invest accordingly.

[anne]

A reason I tire easily of Austrian economists and continual bears, is that economic well-being is taken for a continual threat. Seriously. No matter the problems in Japan from 1992, for Stephen Roach the only solution was to allow the economy to worsen and even force the worsening. But, Roach is not Japanese and why should the Japanese have wished to suffer for the sake of Roach theorizing? My only complaint about the Japanese slow growth period, is that the Bank of Japan and government did not respond to the slowing quickly and decisively enough, but I am impressed at how middle class households were protected until recovery took hold.

[anne]

Americans must increasingly invest to insure well-being, so having a fine measure of security is important.

[Robert]

Winslow R speaking about asset price corrections:

wrote I'd argue so severe that it will not be allowed to happen.

There are numerous "things" that I neither permit nor allow in my household, but nonetheless, my mischievous children conspire to confound so many of my best efforts and intentions. The world is complex; unexpected things happen - often at times that are least convenient for the implementation of such policies (that as Anne points) are most beneficial to the well-being of citizens. But there is also some determinism here: while the cure for asset inflation is seen by many as worse than the disease, we also know from timless experience that pervasive asset inflation will itself, ultimately, cause asset prices to fall inwards upon themselves - if not in nominal terms, then certainly in real terms. Policy traction, for authorities to undertake the very Clinton- & Rubin-esque intervention Anne speaks of is decidely greater when authorities are walking the dog, rather than when the dog is walking the authorities...

[dd]

"Americans must increasingly invest to insure well-being, so having a fine measure of security is important."
This is in large measure because interest rates are low and interest is fully taxxed as accumulated. Your faith in the Fed is admirable and during the Greenspan tenure fully justified; but penalizing savers to benefit investors created a moral hazard of diminishing savings and increasing credit and that in turn led to a host of new unregulated financial products and opaque trading markets to spread the increased leveraging risks.
So while I invest regularly, I still have my rainy day fund in goverment insured certificates.

[anne]

DD is completely right. The tax penalty for interest income is a prime difficulty for middle class savers. Also, we need to know how to use Vanguard bond funds properly, no matter the tax issue, to lessen risk while enhancing long term return. [I write Vanguard only because I know of no finer fairer bond fund company.] Money markets are rarely if ever needed for more than check writing if bond funds are used with confidence.

[Robert]

Anne,

Hot off of the presses (abstract only)The Causes of Japan's 'Lost Decade': The Role of Household Consumption

My belief (until I can get a hold of this paper and/or be proven otherwise) is that Japan's post-bubble govt policy "blunders" were more structural, regulatory, and interventionist than monetary in nature.

[anne]

Well done :) We will read the paper, but the abstract leads me to believe we will find slow and erratic intervention allowed for a liquidity trap to develop. Japan interest and puzzles me, so I am completely open to surprises.

[Robert]

From the snippets I've heard, i believe they ascribe fault to policies, particularly laws & regulations that encouraged continued extension of credit to the dreaded corporate "zombies" (rather than letting them wither & fail), crushing returns in zombified sectors, discouraging capex by more efficient co's, and thereby prolonging adjustment and reallocation of both capital & labour to more dynamic and productive sectors. They do this (if I understood correctly) quantitiatively by comparing zombified vs. non-zombified industries. I do not know if they attempt to make an attribution between these effects and impacts of perceptions of restrictive "monetary policy". Anecdotally, it sure sounds like a validation of Austrian RX of short-term pain, longer-term gain (at least in respect of the corporate sector)....

[anne]

Again, it is worth emphasizing that there is no reason to stay away from the bond market. But, other than for buying Treasuries, the market can be tricky and costly and Vanguard intermediate term funds can be a fine highly conservative choice.

[anne]

Ah, we will find out, the protection of employment by protecting large creditors eased the period of slowing significantly and took place as lowering interest rates were not generating enough new investment to stave off a sharp recession. Remember also, the deflation in Japan actually makes the growth numbers better than otheriwse. Students and parents would tell me of the grey sense of the economy, but always be impressed that so many families felt a reasonable well-being.

[Robert]

one might stand that the investment thesis on its head and suggest: "...since there had been so much excess capex in miracle years of 86 - 91, low interest rates were almost wholly irrelevant to subsequent investment decisions (at least until until China woke up), mostly because Japanese co's turned their attention to "how to turn a profit on past investments" without losing market-share and without unnecessarily or irrevocably offending other relevant constituents like labour unions, customers, suppliers, lenders, MiTi & MoF, and how to survive with a rapidly appreciating currency...

But I agree though the days seemed "grey", a visitor might only know it anecdotally with a most keen eye (and friends who were stockbrokers) :)

[anne]

Japanese households had remarkably little in the way of assets in stocks in 1989. No stock market is as costly and hostile to households as Japan's has been, and this was most fortunate. The loss was in housing values, not stocks and not bonds of course which increased in value markedly and which Japanese rely on far far more than stocks. But, a keen eye found a certain malaise which I was continually told about. The effects were subtle, muted, and I have told families with little return argument that conditions we better than perceived abroad or by financial marketeers.

[anne]

The prime worry I have is over a lunatic war and occupation that is harming us so psychologically and morally, but I trust we will leave Iraq and look to peace.

[groucho]

I see that comments have moved to Japan, which is an extremely pertinent topic, considering that the US will soon be experiencing some of Japan's recent economic phenomena.
Unfortunately, for the US, it will not be a "bankers and business" balance sheet recession that a little monetary finagling by the authorities can easily roll over.

Japan's asset bubbles were stuck on the back of Japan Inc. Shares and real-estate pyramids(bubbles) were mostly in the business/banking sectors of the economy. For the most part households were in pretty good shape(except for those 100 yr mortgages...here you go great grandson/daughter)

Even though many western economists are touting the wonders of QE, the bottom line is it didn't work.(it did create an unbelievable yen carry trade phenomena, though)
What's gotten Japan through it's corporate depression is the banks holding onto NPL's and very, very slowly allowing business to repair their balance sheets. Which they have done......only took 15 years.

Japan also had the extreme good fortune of being an exporter which helped retain many workers. That, plus all the fiscally financed construction is what's kept the average Japanese worker in a pretty good mood.

Fast forward to United States of America 2006. Does anybody really think we're going to get out of this mess anywhere near as easy as Japan has been able to?

In the words of John McEnroe "You can not be serious!"

[anne]

Worries are to be taken seriously, and we can address these at length, but we have the fortune to have learned from Japan as Ben Bernanke and Paul Krugman have as colleagues most especially.

[dd]

Bond funds are fine; but unregulated financial innovation and hedge funds may undermine future performance. The new products and players are exempt from the "old" equities/commodities regulatory structures and that gives the newbies a distnct advantage ie products are tailored for maximum profit, no disclosure requirements, no reserve requirements for hedgies, etc. The playing field has shifted and not to the advantage of the regulated and arguably the high risk players have increased risk (chasing short term profit) even as the risk premium has fallen. Speaking of Greenspan, his influence had much to do with the new credit markets and derivatives. He testified forcefully for exemption and Congress obliged (CFMA of 2000). The $270 Trillion (notional) OTC derivatives market is intimately intertwined with the old fashioned regulated bond and even the stock market and only time will tell if it benefits everyday investors.

[dd]

To Greenspan's credit he never uttered the term "faith-based currency:"
"Answering audience questions after a speech to the Dallas Friday Group, Fisher (Dallas Fed Pres) said the U.S. dollar is a "faith-based currency" dependent on the credibility of a central bank."
Is everything now "faith based?"

[Johnson]

Greenspan just wanted the glory IMO. He had little care for the future and just wanted to debt this country into a cloudy future as long as it gave him his 2 minutes. He also left the job to a man who may not have the ability to do the job. Pilot looks scared when doing the job. I can't blame him, he was left with a sticky situation and he probably doesn't trust himself.

[calmo]

I am listening Madam Cold Fingers and to your credit (and my warm and generous heart) you do not slay the flamboyant Fisher for his style but plug Greenspan for his careful reticence. Almost.
(Does so much depend on Order & Decorum even if it means closing the doors and windows on chaos?)[Look there goes Fisher in the full Monty!]
I'd be reticent, too, if there were derivative contracts based on amounts totally more than 20 times the US GDP.
Or was that an incendiary remark?
I am beyond inflammable.

[me]

good comment groucho

[anne]

No; all a Vanguard bond fund investor has to ask is whether the Federal Reserve will mute inflation through the years. Will you settle for about 4.95% for a Treasury note, and rates ranging up from this for corporates or corresponding tax free rates for municipals? Derivative products will be of no influence on bond fund returns unless the funds use derivatives and this is of no concern with Vanguard.

[dd]

Calmo, Fisher's comment just took me aback. Now is not the time for "faith based" commentary. Markets need confidence and Greenspan supplied an abundance.
Conservative fund managers are to be admired but derivatives have and will continue to impact investor confidence (ie Enron, Fannie, Freddie, the Delphi squeeze) and so will hedge funds (ie LTCM). This is of course a systemic issue and there is little an investor can do but rely on the Fed to stablize the fallout. Greenspan did so without hesitation and I suspect Bernake will too. I admit derivatives give me pause and I tend to be overly cautious perhaps because I worked SEC enforcement before I geared down to rear children (Madam Cold Fingers indeed!). Anne, I think yours is the more coolheaded approach and that is what is necessary to be a long term investor. I enjoy reading your posts...yours too Calmo!

[yartrebo]

Only idiots are buying US bonds or MBS (mortgage-backed securities) right now. They only pay about 5% interest. Inflation is pretty high and your real return is probably closer to 0%. The dollar is almost certainly going to drop over the long run because of the deficits and because inflation is running higher in the US than in other countries. To top it off, there is some risk of default and the default risk will only grow as the debt piles up.

[Robert]

Apparently, looking the yields, even the idiots have stopped buying our bonds....

[Richard]

Anne's quite right: Vanguard is well run, conservative where there are ambiguities in constructing an index and offers the most frugal of fees.

I would offer that building a ladder with Treasury Direct offers much of the same functionality with an even slighter expense, but there is perhaps a bit more work in that.

To those that fear inflation (and I often count myself in this camp) there are both TIPS and savings bonds.

I don't know if there will be a devaluation in the dollar, but note that many contracts (notably, but not just, oil) are dollar denominated, and would devalue as well. In addition, I find it difficult to believe there would not be a regimen of competitive devaluations that would follow.

[calmo]

Bernanke, as Chairman of the Fed (and not quite the Chairman Mao that Greenspan's 18yr tenure earned him) is faced not only with the shadow of the former Fed, but AG's continuing performance as people fail to recognize the distinction of speaking for the Fed (and btw where is Ben?) and speaking personally.
If Bernanke had a better relationship with Mrs Greenspan and could cajole Sir Alan, (a new aphrodisiac for geriatrics perhaps) [A youthful attendant?] the clamp on Greenspan would make the transition for Ben so much easier. [But she has never trusted beards or sandals...should he make an appearance without a tie, I cannot imagine her state, you?]
Fisher with his "bottom of the 8th" talk is not shy about aping Bernanke's "helicopters". [And this is a skin that Bernanke is still shedding for some, yes?]
Fisher with this remark:

the U.S. dollar is a "faith-based currency" dependent on the credibility of a central bank."

is light on shrewd and predictably, heavy on self-importance.
He makes a blunt statement, (undermining the very dependency he hopes to buttress), where Greenspan would have demonstrated the credibility, no matter how obtuse and convoluted the statement. Greenspan's practice, polished. Fisher's, not so much.
Bernanke's voice? I am hoping.