The Man Who Knew: The Life and Times of Alan Greenspan — Twenty-seven: LOWFLATION

1. 1. After the 9/11 attacks, core inflation fell to 1.2% and inflation expectations plunged to 0.4%, the lowest ever in the Michigan survey.
2. 2. Don Kohn warned the FOMC that if inflation turned negative, the zero lower bound on interest rates would render monetary policy impotent.
3. 3. Greenspan had once argued that 19th-century deflation under the gold standard was harmless, but by 2001 he abandoned that view.
4. 4. Greenspan backed Kohn's side and proposed a 50-basis-point cut to 2%, saying the Fed must 'put in enough shot to knock down the opponent.'
5. 5. Greenspan's low-rate policy from 2001 to 2004 fueled a housing bubble that later contributed to the Great Financial Crisis.
6. 6. Paul Krugman wrote in August 2002 that 'Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.'
7. 7. Enron's collapse revealed that large public companies overstated profits by an average of 2.5 percentage points per year from 1995 to 2000.
8. 8. Greenspan slammed his hand on the table and declared 'Capitalism is not working!' at a Treasury meeting on accounting reform.
9. 9. Greenspan warned that Fannie Mae and Freddie Mac's implicit government subsidy undermined risk management in derivatives markets.
10. 10. Greenspan effectively nominated Don Kohn to the Fed board by whispering in President Bush's ear, bypassing the normal personnel process.
11. 11. By summer 2002, the recovery was lopsided: business investment languished while real estate fueled growth, with home prices soaring.
12. 12. The FOMC adopted forward guidance in 2003, promising to keep rates low for a 'considerable period,' after Ben Bernanke argued that communication is a powerful tool.