>> From the Library of
Congress in Washington D.C.
>> I'm [inaudible] and I'm from
the Center for the Book here
at the Library of Congress.
The center promotes books, reading,
literacy and libraries on behalf
of the library and the activities
of our state affiliates are
highlighted here at the festival
if you visit the Pavilion of
the States on the second level.
You can also find us on the website
at read.gov where we offer hundreds
of digitized free books
for kids, teens and adults
and also many webcasts from
previous national books festivals.
The Center for the Book also
administers the libraries Young
Readers Center and the
Poetry and Literature Center,
which is home to the
US Poet Laureate.
It is now my pleasure to
introduce Alan Greenspan
who is the former chair of
the Federal Reserve Bank.
Economist Greenspan was Chairman
of the Federal Reserve from 1987
until 2006, which is the second
longest term of anyone in the job.
He currently works as a consultant
through his company
Greenspan Associates.
Greenspan's tenure as
head of the fed was marked
by historically low interest rates.
His latest book, which is
for sale in the pavilion
with the book sales
is called "The Map
and the Territory Risk Human Nature
and the Future of Forecasting.
Alan Greenspan will be interviewed
today by David Rubenstein
who is the major donor to this
National Book Festival and also
to the Library of Congress
Literacy Awards.
That program will follow this one so
I please urge you to stay for that.
David Rubenstein is co-founder
and CEO of the Carlyle Group
and a major philanthropic
force in Washington.
In addition to the National
Book Festival and the Library
of Congress literacy
awards and projects
with many other institutions,
Mr. Rubenstein has put on display
in the library's great hall
his personal copy of the map
of the newly independent United
States that was complied, printed
and published in America
by an American.
So I please urge you to go
to the library's great hall
to see this beautiful map.
Moreover, if you have visited
the recently reopened Washington
monument, you have David
Rubenstein to thank
for funding it's restoration
after the earth quake.
So please welcome Alan
Greenspan and David Rubenstein.
[ Applause ]
>> So how many people
here want to know
where the economy is
going [laughter]?
How come that's why you came?
Alright, well we've got about forty
minutes and everything you need
to know about the economy we're
going to have this morning.
Okay so in your new book which
was just mentioned "The Map
and the Territory Risk
Human Nature and the Future
of Forecasting" now
that's not a title
that rolls off the
top of your tongue.
Was that your pick on the title?
>> No comment.
>> No comment.
Okay I would think Alan Greenspan
Economics 101 would have been better
but this is a good title
and it's a very good book
and I finished reading
it and I would
like to ask you a few questions
about it but before we get
into the book and some of
the things you say there,
I'd just like to ask you what
is your view on the economy?
Right now is the economy
getting better?
Is it slowing down?
Are we going to have a recession?
Any great recessions?
Where do you think
the economy is going?
>> Well, I think the data at
this particular time indicate
that the economy is
recovering and is likely
to continue to recover for a while.
The problem basically
is that almost all
of the action occurring
is a consequence
of the extraordinary
rise in stock prices
and the stock prices
themselves are far more important
for economic activity than I
think any of us really understand.
It spills over into all
asset type instruments.
For example, it's affecting
the issue of the cap rate
in real estate, meaning real estate
prices even though construction
in real estate is dead in the
water are rising significantly
and so the point here I'm trying to
make is that what we have to thank
for the modest recovery that we're
getting is the rise in stock prices,
which in turn is the result
of the federal reserve's
very heavy purchases
of bonds mainly US treasury bonds
and mortgage bank securities.
That in turn lowers interest
rates across the board
and price earnings
ratios in stocks up.
>> Right in light of what you've
said, where do you invest your money
to take advantage of what you know?
Now when you were the chairman
of the fed you could only buy
treasury bills I guess right?
>> Correct.
>> Now that you can do
other things, private equity
or something more important
than that or any?
>> Well, I try to find out what
Carlyle is doing and [laughter].
>> So let me ask you
today many people think
as you've indicated
interest rates are very low.
Can you give us any guess when you
think they might actually come back
up again?
>> Yeah I suspect you're going to
find that interest rates are going
to be moving higher
sooner than later.
>> Sooner than later like sooner
this year or maybe next year?
>> Well, it's hard to say
logically because we're in an area
where we have never been
before and lots of people
in fact I do not know an economist
who you can ask that question
who won't give you an answer.
>> Okay so.
>> The only problem
is he doesn't know.
>> Now you've worked in your career
you were a clarinetist before you
became an economist.
You were a clarinetist in high
school, you played professionally
and then you went back and got
your college degree sumacunlaude
from NYU.
Why did you give up the
clarinet for economics?
>> Well, I was a very good
amateur clarinet saxophone, flute,
bass clarinet and I turned out to
be a rather average professional
and I was acutely aware I
don't know how many people
in the audience would remember
Stan Gats but I used to sit next
to Stan Gats who became a very
famous tenor saxophone player
and I said I can never match
what this kid is doing.
I was a kid myself of course and
I said I'm in the wrong profession
and so I went back to college,
got a bunch of degrees and lone
and behold I became an economist.
>> Okay so you after you graduated
from college you became a
professional economic consultant,
you joined a firm that was
called Townsend and Company,
then you became Townsend Greenspan
and then ultimately you were
recruited by President Nixon to come
in as the head of the
council of Economic Advisors
but then before you kind of actually
showed up, he resigned [laughter].
Is that right?
>> I assume there's
cause and effect there.
>> Right so maybe it
could have been who knows.
So you know you're telling
everybody you're going to go
down to Washington and
then the president resigns
so what did you do?
>> I waited until Gerald
Ford re-nominated me.
That's what happens when you
leave office as President,
pending nominations lapse and your
successor then can either decide
to re-instate them, or to
have totally different ones.
>> Okay so you worked for Ford
as you were the tenth chairman
of the Council of Economic Advisors.
You did that for a couple of
years and then you left the office
when Ford was defeated by Jimmy
Carter, and then you came back later
as the thirteenth Chairman
of the Federal Reserve Board,
and you worked there for President
Regan nominated you, then you served
under George Bush, you served under
Bill Clinton and George W. Bush
and you worked for Gerald Ford
and you've also advised
some other presidents.
Who was the smartest president
you ever worked for [laughter]?
>> I would say basically
the smartest two presidents
who are actually Bill
Clinton and Richard Nixon.
Now there were a few things
wrong with Richard Nixon.
I don't have enough
time to [inaudible] them
but I knew right off the bat
as soon as dealing with them
that I didn't want to have any part
of that White House so I just stayed
on the fringes and told them when
they nominated me for Council
of Economic Advisors I said look
I said i cannot work in the type
of environment I've
been seeing with wage
and price controls this and that.
Back in my head is I knew
exactly what we heard
on the tapes I heard them in person.
>> You mean some of the anti-Semitic
comments or other things?
>> Well, my general view was that
he hated everybody [laughter].
>> Okay alright, so you go back
after Ford loses the election you go
back and become a consultant again
and then one day you're called
up and you're asked if you'd
like to be the chairman of
the Federal Reserve Board
and I assume you were happy to get
that but you go the position October
of 1987 and we had a gigantic
market crash, not cause
and effect I guess right.
But what did you don't know.
So you're in office for what
like a couple of weeks and all
of a sudden the market
goes down five hundred
and eighteen points
what did you think?
>> First of all, it was two months,
I was an experienced advisor.
>> Oh two months okay.
>> I was in Dallas at that point and
I couldn't decide whether I ought
to go back to Washington right away
because we had never seen
anything before or since.
That was October the 19th 1987.
The stock market the DOW Jones
Industrial average declined
as I recall it twenty
three percent in one day
and nothing close has
occurred since or prior to then
and having been a student of
financial markets for quite a while
at that point, I said, we're in for
a really serious potential problem.
>> You came back?
>> What happened basically is
that the next day was terror,
its fact a very funny anecdote
on the day following I'm
in my hotel room in Dallas and
I got a call and the operator is
on the phone and says the White
House is on the phone for you.
So I say who is on the phone?
He says Senator Baker.
Senator Baker was then
Chief of Staff and so I
with mocked seriousness I
said good morning anything
in this world bothering you?
There was a pause; the next word
I heard was help [laughter]!
>> So you came back?
>> I came back and we
were very fortunate.
People don't realize
how close that was.
Today you cannot see
it in the GDP figures.
You do not even know that anything
was potentially wrong at that point
because you would understand this
and I recall Goldman Saks was doomed
to make a seven hundred
million dollar payment.
Back them seven hundred
million was real money
and they were a little bit edgy
and we and the administration tried
to indicate to them that it would
be very dangerous if they didn't
and in the end they
decided to make the payment
and that got us through
the first day.
Then I got a call from the head
of the New York Stock
Exchange saying we're shutting
down in an hour.
And I said oh my God do you realize
what will happen if you shut down,
you won't be able to open
up for Lord knows how long.
Where are the bids
going to come from?
And that fortunately passed and we
eventually got through that period.
It was one of the worst periods I
had as Federal Reserve Chairman.
I don't know I couldn't consider
anything worse than that,
yet today it is completely
forgotten.
Why? Because nothing happened.
>> Well, let me ask you you've
mentioned that Howard Baker called.
You worked under four presidents
when you were chairman
of the Federal Reserve.
How did the White House
kind of communicate
to you what they thought would
be a good economic policy?
Did they have a private
way of doing it?
So how do you kind of
relate to the president?
Did they kind of say
lower interest rates
or what do you do when
they say that?
>> Well, first of all the Federal
Reserve is an independent agency,
President of the United
States has no control except
in the nomination process
of governors and I must say
that most presidents
never said anything
about what they thought
Federal Reserve policy would be.
There were one or two who.
>> Who were they [laughter]?
>> Memory fails me [laughter].
>> Okay so they don't interfere and
that's a good thing they would say.
Let me ask you this: When you were
chairman of the Federal Reserve,
it was said that you came up with
your best ideas in the bathtub,
that you had a bad back and to
get your back feeling better
in the morning you would take
a bath and you would come
up with good ideas and then
the staff would see the notes
with little water marks
on it is that true?
>> It's not only true but
it continues to this day.
>> Okay, alright so and it was
also said that when you came
to the office with a full briefcase
it meant something different
than when you had a thin briefcase.
What was the truth about that?
>> That was a fabrication by the
press who looked for all sorts
of peculiar things as to the signal
as to what the Federal
Reserve was going to do.
And so they came up with this
thing of when I would be marching
to my office for a block and a
half I'd walk into the office
and they would say well we can tell
whether or not rates are going up
or down by how thick my
briefcase was how loaded it was.
And I said, once at the end
of all of this nonsense,
I said you know I hesitated to
inform you the reason it was fat
or thin is whether or
not I packed sandwiches
for lunch it stuck out a bit more.
>> So you served nineteen years as
chairman of the fed, very long time,
obviously you must have
learned a fair bit.
If you had the position today,
what would you say you have
learned you know during your time
as Chairman of the fed or since then
that you would do differently today?
Is there anything you would
do differently today based
on the experience you had at the
fed or since you left the fed?
>> Yeah something very important
and that is the nature of bubbles,
which back in the early years
of my tenure it was just
called booms and buzz.
We never had enough of them to
get a fix on what makes them tick.
What I learned going
through not only my tenure
but also beyond my tenure and into
the crisis of September 15, 2008,
and it turns out that by
definition all bubbles burst.
But not all bubbles are toxic.
For example, the dot com boom was
a huge bubble and it collapsed
with virtually no impact
on the economy.
Similarly, the subprime mortgage
bubble was precisely the opposite
as was 1929 and so we have
these few observations
but most recently what we've
learned is one a necessary
and sufficient condition for
a bubble is a prolonged period
of tranquil calm economic
environment but whether
or not the ultimate collapse
or they all collapsed as I said
by definition if they don't
collapse they're not a bubble
but if they collapse in the context
of the owners of the toxic acids
for example, stocks in 2000
and subprime mortgages in 2008,
you get two very fundamentally
different results.
Basically, stocks are held
mainly by non-leveraged studies,
non-death burden types
of institutions.
Pension funds, even households,
mutual funds so that there's
a huge loss that occurs
when the markets collapse but
there are no secondary what we call
serial contagions.
>> Because they're not borrowing
money they have to pay back.
>> Precisely.
And the fact that they don't have
to pay back is a result
of that it is debt.
If it is not debt,
there's no obligation.
>> So where do we can you mention
a few bubbles that you think are
around today that maybe
we should avoid?
>> The issue of the crucial
nature of what we've been going
through the last five years is
scarcely a state of excess euphoria.
We've had five years of what I
would say is false dawn recoveries
and that's what bothers me
about the current one is whether
or not we've got enough momentum to
get out of this but it's not clear
to me that it is and this is the
reason why as I explained in the Map
in the Territory in some detail,
what it is we're dealing with here
which is a very complex
issue of human psychology
and most importantly it is the issue
of uncertainty, which is engendered
by a lot of forces, both
political and otherwise I explain
that in the book in detail.
>> Now when you were became Chairman
of the fed, as we mentioned in 1987,
your predecessor was Paul
Volcker and then you left
and then your successor
was Ben Bernanke.
Did Paul Volcker ever call you up
and say I got some advice for you,
you should do things differently,
or did you ever call up Ben Bernanke
and say I got some good ideas
for you, or you don't ever talk
to each other once you leave
the fed is that how it works?
>> The answer is yes and no.
We talked to each other
socially at social engagements
but there's an unspoken edict
amongst Federal Reserve Chairman
that you never comment upon or
evaluate what your successors do.
For eighteen and a half years Paul
Volcker never once said called me up
and said you got it wrong
you're doing this or that
and I very much appreciated that.
I thought my initial purpose
when I arrived at the fed is
to basically maintain the degree
of suppression of inflation
which Volcker managed to ring out of
the economy at a very critical time.
So the thing that I'm proudest
about is my fed tenure was
actually following Volcker's action
and maintaining what
was an extraordinarily
non-inflationary environment.
>> So you haven't called Ben
Bernanke to give him advice
or you didn't, but now
that he's not the Chairman
of the Fed can you now
comment on how he did?
>> No [laughter].
>> Okay and you wouldn't call
Janet Yellen and tell her
when to increase interest rates
or anything, you wouldn't do that?
>> No. However, I must say,
both are very close friends
and I see them quite often but in
non-policy making environments.
>> Okay so you met a lot of foreign
leaders as well in your tenure
as Chairman of the
fed and after that.
Are there any foreign leaders of
foreign countries that you would
like to mention as
particularly impressive
or ones you think were not
particularly impressive?
>> Well, Gordon Brown who was as
you know prime minister of Britain
but before that Chancellor,
he didn't make he had a lot
of political problems
as Prime Minister
but as Chancellor he
was superb in the sense
that by statute the Chancellor
and the Governor of the Bank
of England often meet with
the Secretary of the Treasury
and the Chairman of the Fed and
I had an awful lot of meetings,
especially in the context
of the G7 and G8
and then subsequently G20 meetings
where Gordon Brown was
intellectually dominant
like you would never see
anybody for numbers of years,
extremely knowledgeable,
extremely erudite,
he didn't have sensitive
political touch that Tony Blare
for example had but I was
very impressed with him.
>> So in your work in England, or
for your work in the United States
but you later gave some
advice to people in England,
you were knighted,
Americans can't be called sir,
you can be in affect knighted I
guess and you received a knighthood
so did the queen ask you about
interest rates or anything
when you were she didn't ask
anything about the economy
or she just gave you the knighthood?
>> No I got actually knighted
at [assumed spelling] Castle
in Scotland and they had a little
luncheon for me with the queen
and the prince and most of
the conversation was basically
on I thought on horses which she
said was very interesting and low
and behold I'm sitting there next to
her at lunch and the very first set
of questions are all about
the politics of South Africa
and she's an extraordinarily
intelligent woman and she sat
through all of those monthly
meetings with Prime Ministers,
she got a wonderful historical
perspective but she's very smart.
>> But she didn't ask you any
economic questions or anything?
>> Not that I knew how to answer.
> Okay so when you were
Chairman of the Fed you testified
in Congress frequently and
very often people said you kind
of said a lot of things but
it was hard to understand,
you were talking a language that
was fed speak and therefore members
of Congress weren't exactly
certain what you were trying to say.
Was that on purpose or
was that [laughter]?
You didn't want to
tip your hand is that?
>> Well, yeah, I used to go
before the house and the senate
and I would have a hypothetical
little screen above my head,
in which I'm about to say
something I see it as a headline
in the Washington Post the following
morning and my tongue turns over
and unbelievable gibberish
is emitted there
after so my view basically
which turned
out to be remarkably accurate
is that they didn't know
that it wasn't making
simple English sentences.
>> So when you're chairman
of the Federal Reserve Board
obviously people are interested
in where interest rates are going
to go so when you go to a party
or something like that
do people kind
of sly say well you know how do you
think interest rates are going to be
or do they kind of get you to try
to say something you're not supposed
to say or how do you
deflect from that?
>> They will fluctuate.
>> Okay [laughter], alright.
And today, many people
who write books who served
in government basically
have a collaborator
but I think you didn't have a
collaborator you basically wrote
this yourself so you
do it long hand,
you have computers,
how do you do this?
>> Well, I can type into a
computer but it's remarkable I find
that I think with a pen in my
hand, I'm left handed so I scribble
and so I've been very
fortunate to have people
who can read what is illegible
to most everybody else
and so I write it out or I
dictate it and they make sense
out of it which is very important.
>> So how long did it take you
to actually write this book?
>> Oh a year and a half.
>> Year and a half.
Okay and so when you ever get
to the point you say this
is frustrating I'm not going
to finish this, or
that never happens?
>> No something different happened.
The early chapters of
course get turned in
and my editor publisher
looked at it today,
it's terrific stuff we need it for
Christmas season, this is now June
of last year and I said to him but
wait a second, I'm only half done,
he said finish it in the paper back.
So I took him literally and
now the paper back is coming
out in a couple of months.
It's now called "The Map
and the Territory 2.0.
>> Okay
>> The reason is it's
quite the second half
of the book I didn't write.
Now before anybody things well
they're going to get something new,
what's not in the book and is in
the appendix is an awful lot of math
so I wouldn't suggest that
the average reader read it
because even though I endeavored
in this book or in the paper back
as I did in this book to have a
narrative which flows independently
of the mathematical proofs.
>> But your publisher wouldn't
agree that people shouldn't read it,
so your publisher would say
they should read this book first
and then get the other book when
the paper book comes out right?
>> Correct.
>> Okay so and when you are at the
Federal Reserve, you're chairman
at the Federal Reserve Board is it
always a problem to get a consensus
at the fed or when the chairman
of the fed says this is what we're
going to do everybody falls in line.
>> Remember that by
statute each member
of the Federal Reserve
Board has one vote;
seven members each have a vote.
The chairman has only the
authority to put the initial agenda
for the meeting on the table
but that can be very readily
overwritten by a majority of vote
>> But that never happened
when you were?
>> It never happened and one
of the reasons basically is
that I was always aware where each
of the members stood with respect
to policy and not necessarily
concurrently
but if you listen very closely to
the form of the debate that's going
on in the previous meeting,
you can be pretty well sure
granted what the data are
since that time where they will be.
So I never got to the point where I
was making the initial suggestions
of policy, which deviated
from where I believed the mass
of the open market committee was.
>> You were chairman of the fed,
you had a man on the
Fed named Ben Bernanke,
did you ever say this
guy is a comer,
he could actually get somewhere?
Was it clear to you he might
be Chairman of the Fed someday?
>> Not that but I often
consulted with him on issues
which he knew more about than I did.
>> Okay so final question I'd
like to ask you is you've written
two books since you left, maybe two
and a half you could say, paper
back so "The Age of Turbulence,"
which was your first book and then
this one, do you have another book
that you're thinking of writing or
what would you like to do in terms
of communicating your
views in the future?
>> Well, I can't imagine
being at a book festival
and saying I'm not going
to write another book.
>> That's the right answer.
Alright, so everybody
should buy this book
and then wait for your
next one right?
>> Right.
>> Okay thank you very
much for a great job.
Thank you [applause].
>> This has been a presentation
of the Library of Congress.
Visit us at LOC.gov.