WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan sharply criticizes President George W. Bush's administration and Republican congressional leaders in his memoir for putting political imperatives ahead of sound economic policies, several newspapers reported on Friday.
"Little value was placed on rigorous economic policy debate or the weighing of long-term consequences," Greenspan writes of the Bush administration. Accounts of Greenspan's book, "The Age of Turbulence: Adventures in a New World," which is due to be published Monday, appeared in the Wall Street Journal, the New York Times, the Washington Post and USA Today.
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 in their willingness to approve spending measures that would benefit Republicans even at the cost of fiscal prudence, they "swapped principle for power," he said.
Greenspan's congressional testimony in favor of tax cuts during the early part of the Bush administration has been criticized by some for giving the green light to Congress to approve the president's fiscal policies. However, the former Fed chief has subsequently said Congress ignored his recommendations that it accompany any substantial tax cuts with safeguards to protect against future deficits.
In his book, he acknowledges that people who warned him that his words would be used selectively were right. "The tax-cut testimony proved to be politically explosive," he writes. "While politics had not been my intent, I'd misjudged the emotions of the moment. . . . Yet I'd have given the same testimony if Al Gore had been president," he says. Greenspan, now 81, was chairman of the U.S. central bank from August 1987 until January 2006. He was the second-longest serving chairman in the Fed's 93-year history. Bush's first term began in 2001.
Looking at the future of the U.S. economy, Greenspan warns that if the Fed is to keep the inflation rate between 1 percent and 2 percent in coming years it may need to force interest rates into double digits. But Greenspan 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 percent to 5 percent by 2030, and 10-year Treasury yields would rise to at least 8 percent with the potential to go "significantly higher for brief periods."
OFFERING A DEFENSE The former Fed chief said that as the process of increasing globalization slows, inflation pressures will reassert themselves. He points to recent increases in the prices of U.S. imports from China and a rise in long-term interest rates as signs "the turn may be upon us sooner rather than later." Greenspan's 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.
At the same time, Greenspan's policies have been criticized 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 Greenspan's successor at the Fed, Ben Bernanke, is grappling with. Greenspan defends his policy course in the book. "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 Greenspan's book comes just ahead of a Fed meeting on Tuesday that is the most closely watched of 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 percent to help the economy shake off a prolonged housing downturn and credit-market turbulence. The book makes scant mention of Bernanke, according to accounts, except in a photo caption in which Greenspan says, "I was very comfortable leaving the post in the hands of such an experienced successor."
(Additional reporting by Ransdell Pierson in New York)