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Former Federal Reserve chairman Alan Greenspan in a memoir to be released today sharply criticises President George W. Bush and congressional Republicans for abandoning fiscal discipline and for placing political priorities ahead of sound economics.
Greenspan says in his book, The Age of Turbulence: Adventures in a New
World, that he was surprised that Bush was unwilling to temper his campaign promises with fiscal reality once elected in 2000, as previous Republican administrations had done.
"I did not foresee how different the Bush White House would be," he writes. "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences ...
"Much to my disappointment, economic policymaking in the Bush Administration remained firmly in the hands of White House staff."
Greenspan, 81, was the second longest-serving US Central Bank chairman in the institution's 93-year history when he stepped down in January 2006.
Praise has been heaped on the New York native and self-described "libertarian Republican" for overseeing the longest US economic expansion on record.
A jazz musician before turning to economics, Greenspan built his reputation as Fed chairman with his calm handling of the stock market crash of 1987, the 1997-98 Asian and Russian financial crises, and the economic turbulence that followed the September 11, 2001, attacks on the US.
But he has also come under fire for policies that some say led to bubbles in technology and housing. His successor, Ben Bernanke, is coping with a prolonged housing downturn and credit-market turbulence.
Greenspan's long association with Republican administrations and his reputation for independence add clout to his criticism of the Bush Administration and of other Republicans who led Congress until 2006.
Greenspan said in his book that Bush's combination of tax cuts and spending on the military and prescription drug benefits, while not "unrealistic" in 2000 after several years of federal budget surpluses, was no longer appropriate in the world of growing deficits that returned in 2002.
The former Fed chairman said he urged Bush to veto a string of "budget busting" and "out-of-control" spending bills, but to no avail. He wrote that he was told the President preferred to avoid antagonising Republican political leadership.
"To my mind, Bush's collaborate-don't-confront approach was a major mistake - it cost the nation a check-and-balance mechanism essential to fiscal discipline," Greenspan writes.
White House spokesman Tony Fratto said the Bush Administration conducted "rigorous" analysis and that the tax cuts ultimately accelerated the US economic recovery after the 2001 recession.
"Because Congress worked with us, vetoes weren't necessary. We're not going to apologise for increased spending to protect our national security. That isn't just 'increased spending', it's an investment in the safety and security of the nation," he said.
A consummate Washington political insider linked to former presidents Richard Nixon and Gerald Ford before becoming Fed chairman in 1987, Greenspan also has been criticised for endorsing Bush's proposed tax cuts in his testimony to Congress in January 2001.
Greenspan defended his comments at the time, which he said were balanced, with a call for safeguards in case the fiscal situation deteriorated. In the memoir, he ruefully acknowledged he underestimated how his words would be selectively interpreted. "While politics had not been my intent, I'd misjudged the emotions of the moment," he said.
Greenspan also addressed criticism that rock-bottom borrowing costs early in this decade fuelled the housing bubble that has resulted in a burst of foreclosures among borrowers with blemished credit, saying the unusual risk of a downward spiral of prices was serious and needed to be dealt with.
"We wanted to shut down the possibility of corrosive deflation; 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 writes.
- Reuters
