From Greenspan to Greenberg

Thursday, Apr 02, 2009

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Ben Bernanke, The Federal Reserve Board, Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C., November 21, 2002, http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm.

"It is clear that the current approach has not worked and cannot work in today’s environment," Mr. Greenberg, who was ousted from A.I.G. in 2005, told the House Oversight and Government Reform Committee. "A.I.G., in my judgment, in the current plan, will not pay the taxpayers back."

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He also disputed the statements of both the Treasury secretary, Timothy F. Geithner, and the chairman of the Federal Reserve, Ben S. Bernanke, that letting the company go bankrupt would wreak further havoc with the economy.

"There would have been a ripple, but it wouldn’t have been catastrophic," Mr. Greenberg said. "I don’t think it would have been disastrous."

The New York Times, Edmund L. Andrews, Ex-Chairman of A.I.G. Says Bailout Has Failed, April 2, 2009, http://www.nytimes.com/2009/04/03/business/03aig.html?_r=1.