What he said in that CNN interview, I believe, was that the Federal Reserve could simply write off the trillion dollars debt owed by US Treasury to US Federal Reserve in just one weekend without any financial consequences, if (That is a very big IF) it were not for psychological factors affecting the financial markets.
ZAKARIA: So, the day - news that we have now is that the U.S. economy grew the last quarter 3.6 percent, faster than people, than anyone really expected. And the question I have for you, is so we now have a kind of experiment of sorts which is the United States has pursued ever since the financial crisis, a very expansionary monetary policy. You seem, though, you're uncomfortable with this - with this level of monetary expansion that the Fed is doing.
|CNN anchorman Fareed Zakaria.|
ZAKARIA: Why is there more uncertainty now than there was in 1985 at the height of the Cold War, 1995, you know, enormous changes in technology that were taking place. It doesn't -- when I look at it today, it doesn't seem like it's more uncertain than those times.
ZAKARIA: And, of course, you believe that if the Federal Reserve does not unwind these measures pretty soon, we're in for trouble?
“Right at this moment, if it weren't for psychological factors affecting the market, the Federal Reserve over a weekend can swap with the U.S. Treasury, billions and billions of dollars to contract the Federal Reserve balance sheet and reverse a goodly part of what they have already done with no consequence, it's strictly a bookkeeping entry.”
The problem is the markets will probably go berserk if they were to do that and that's outside the limits. But the Federal Reserve is working on all sorts of measures to decide how they can pull back before the actual money multiplier as they call it begins to really take hold. But there's no evidence at this stage that it's about to happen, so the Federal Reserve does have time and the question is, how do you handle psychology?
ZAKARIA: We've got to go, but I've got to ask you one final question, I know you're not going to tell me what you think of Janet Yellen as a potential Fed chairman. But I'm going to ask you a different - slightly different question. Do you think it makes a difference in your long experience that she's a woman? You happen to be married to a very strong, professional working woman. Do you think men and women approach something like economic policy differently?
ZAKARIA: Alan Greenspan, pleasure to have you.
(Please click to see WSJ interactive chart for Federal Reserve's Balance Sheet.)
Related posts at following links:
U.S. Humongous Debt, Communist China, and Federal Reserve Printing Money
Political System Is Broken: Greenspan Denied His Faults