"The fact is that Greenspan's policies over the past few decades have created vast and unsustainable imbalances in the US economy."
Merryn on Money:
America is not invincible
IT IS tough being a contrarian these days. All the investments I used to write about, in the happy knowledge that I would be the only one tipping them, have come over all mainstream. Only three years ago a fund manager told me I was making a fool of myself persisting with "the gold thing". Today everyone's buying gold and everyone's tipping it.
The same can be said of silver, base metals, oil (we haven't heard much from the back-to-$40 crowd recently), Japan (which has made the cover of almost every British investment magazine this year) and this month even soft commodities - a year ago nobody knew what they were, now half the world appears to be spread- betting on the sugar price.
On the plus side, I am still hanging on to one opinion that puts me in something of a minority - the view that Alan Greenspan's legacy to America, as he prepares to retire on Tuesday, is a truly horrible one. Greenspan's many fans say that in his 18 years at the helm of the Federal Reserve he has presided over a low-inflation era of astonishing prosperity and stability. But is this true? The answer is that it depends how you look at it. Greenspan has prevented any huge crises actually taking place on his watch, so for that you could applaud him. However, what his preventative actions have also done is pretty much guarantee that a serious crisis will take place on his successor's watch, something I'd say isn't quite so praiseworthy.
The fact is that Greenspan's policies over the past few decades have created vast and unsustainable imbalances in the US economy.
In response to every single problem - the 1987 crash, the collapse of LTCM, the technology crash of 2000 and the corporate scandals of the early part of this century - he has cut interest rates and kept cutting them. But keeping rates this low - while it has averted obvious disaster - has had a nasty effect on the way the US economy sustains itself. Low interest rates mean more people borrow more money, and Americans have been borrowing in some style.
Last year four out of ten new homebuyers in America put down no deposit at all; in the past 18 years mortgage debt has jumped from $1,800 billion (£1,000 billion) to $8,200 billion; consumer-debt levels have quadrupled in the same time frame; the average American credit-card debt per family now stands at well over $8,000; and last year the savings rate in the US actually turned negative.
Government debt has soared at the same time. As Bill Bonner, author of Empire of Debt, points out, more government debt will have been issued during the eight years of the Bush administration than in the 200 years before that put together.
All this debt has - as Greenspan presumably intended - spurred asset prices and consumer spending upwards, something that has kept the economy moving ahead nicely in gross- domestic-product-growth terms - consumer spending has been the main driver behind the US economy for years now - and that has boosted asset prices to their current levels.
But nobody can borrow and buy for ever. Even Greenspan knows that. Last year he warned that periods such as this often end in tears: as soon as people get nervous, he said, risk premiums go up, asset values go down and debt is liquidated with major losses being made all round along the way.
Disaster may not come to the markets immediately - but I'm not sure that's a risk I'd like to take with my money.
I'm still steering well clear of American investments and I wouldn't be surprised if Greenspan were, too, as he heads off to a new world of $150,000- a-pop after-dinner speaking engagements.
Merryn Somerset Webb is a former stockbroker and now editor of Money Week. Her views are personal and investors should always seek professional advice