Monday, November 21, 2005

Gnomic central bankers

Remarks by Chairman Alan Greenspan
At the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington, D.C.
December 5, 1996

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.

The public examination of Federal Reserve actions extends well beyond our stewardship of monetary policy. Our overall management of the Federal Reserve System should, and does, come under considerable scrutiny by the Congress. Since we expend unappropriated taxpayer funds, we have an especial obligation to be prudent and efficient with the use of those funds. I am not particularly concerned about the one-third of our annual $2 billion budget that is expended to provide financial services to the private sector in competition with other providers. Such services include the clearing of checks, the operation of the Fedwire system, and the processing of automated clearing house payments. We are reimbursed for those services, and at competitive prices still make a reasonable profit for the Treasury. If we became inefficient and uncompetitive, we would be priced out of the market, and eventually out of that line of business."

Speech of His Excellency the Governor (pdf)
To the Custodian of the Two Holy Mosques on the Occasion of the Presentation of SAMA's Forty-First Annual Report

"...It is highly gratifying that in assessing the performance of the Saudi economy, various international financial organizations and rating agencies have paid tribute to the economic policies followed by your wise leadership for continued maintenance of fiscal consolidation and confining expansion in expenditure to long-term investment in vital production sectors and programs aimed at improving the status of the categories of the community whose needs are paramount, particularly in view of the fact that the increase in revenues has resulted from developments in the global oil market which has been subject to considerable volatilities over time.

Your wise leadership will ensure, God willing, consolidation of the economic march and save the economy from the vagaries of the oil market. Your directives to rationalize expenditure in spite of the substantial improvement in revenue and to allocate the fiscal surplus for future projects and important programs, reduce public debt, and build appropriate reserves to meet adverse impacts that might result from unexpected and sudden changes in the oil market are quite reassuring and speak of Your Majesty's sagacity and foresightedness.

May the Almighty Allah guide your steps to success."


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