Greenspan: Fed's Massive Stimulus Had Little Impact & Doesn't Expect Debt Ceiling Talks will be resolved by Aug 2

The Federal Reserve's massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.
In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy.

"There is no evidence that huge inflow of money into the system basically worked," Greenspan said in a live interview.

"It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion," he said. "Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1."

Greenspan’s comments came as the Fed ended the second installment of its bond-buying program, known as QE2, after spending $600 billion. There were no hints of any more monetary easing—or QE3—to come.

Greenspan said he "would be surprised if there was a QE3" because it would "continue erosion of the dollar."

The former Fed chairman himself has been widely criticized for the low-interest rate policy in the early and mid 2000s that many believe led to the 2008 credit crisis.

Bernanke, who took over for Greenspan in 2006, began implementing the quantitative easing program in 2009 in an attempt to unfreeze credit and prevent a collapse of the US financial system. The strategy has gotten mixed reviews so far.


On Greece, Greenspan said a default is likely and will "affect the whole structure of profitability in the U.S." because of this country's large economic commitments to Europe, which holds Greek debt. Europe is also where "half the foreign [U.S.] affiliate earnings" are generated, he added.

"We can’t afford a significant drop in foreign affiliate earnings," Greenspan said.

Greenspan was also pessimistic about the U.S. deficit talks, saying he didn’t think Congress would reach an agreement on raising the debt ceiling by the Aug 2 deadline.

“We’re going to get up to Aug 2 and I think on that night, we are NOT going to have the issue solved,” he said.

If that happens, he said, the U.S. would have to continue paying debt holders or risk major damage in global financial markets. As a result, “we will default on everything else.”

He added: “At that point, I think we’ll all come to our senses.”

Higher than expected inflation, yet core went flat - Mandiri

Consumer price index accelerated 0.55% mom in Jun11, exceeding our forecast of 0.43% and 0.37% consensus, respectively. Despite the monthly inflation was higher than last month, the annual reading continued to ebb, reaching 5.54% yoy. Surprisingly, annual core inflation was flat at 4.63% vs 4.64% in May, despite indication of strong demand pressure. At this juncture, we expect that inflation will likely ease in the 2H11, due to last year’s high base and relatively favorable weather. However, there is still an upper side risk due the possibility that the government could cut fuel subsidy, even the odd is getting smaller as the government plan to increase budget deficit in light of increasing financing needs for fuel subsidy. We maintain our inflation forecast at 5.7% by YE11. Based on our observation above, we think the central bank will maintain the policy rate unchanged in the next board meeting (12 July), however we still expect another 25-bp hike in BI rate to 7% later this year.