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Greenspan Says China Will Determine World Economic Fate in 2030

Greenspan Says China Will Determine World Economic Fate in 2030

Scott Lanman
Bloomberg
September 17, 2007

Former Federal Reserve Chairman Alan Greenspan said China will be the U.S.’s major competitor by 2030 and the world’s economic fate depends on how much more Chinese leaders embrace markets.

“Much of how the world will look in 2030 rests on this outcome,” Greenspan wrote in “The Age of Turbulence: Adventures in a New World,” his memoir released today. “If China continues to press ahead toward free-market capitalism, it will surely propel the world to new levels of prosperity.”

The prediction comes in the 531-page book’s final chapter, devoted to the author’s vision of the future after two decades running the world’s most powerful central bank. He also predicts faster U.S. inflation, slower productivity growth and interest rates of at least 10 percent that will lead politicians to challenge the Fed’s independence.

Praising the leadership of former U.K. Prime Minister Tony Blair and his successor Gordon Brown, Greenspan predicted that Britain “should do well.” Continental Europe must welcome immigrants and reduce welfare, Russia needs to “fully restore the rule of law” to develop further, and India has “great potential,” he added.

Japan’s $4.5 trillion-economy, now the largest after the U.S., may find it hard to counter the loss of its ranking, given that it has an “even less promising” demographic future than Europe’s, Greenspan said. The country will still remain a “formidable force.”

Primacy of Markets

The success of every nation — big or small — will depend on the extent to which it allows free trade and open markets, Greenspan declared.

“Even as nations as mighty as the United States and China vie for economic supremacy in that new world, they may find themselves partially bending to a force more powerful still: full-blown market globalization,” Greenspan wrote.

Greenspan, 81, served as Fed chairman from 1987 until his retirement in January 2006. Before that, he was a private economist in New York, advising many of the biggest U.S. companies, and worked for about two years as chairman of the Council of Economic Advisers under President Gerald Ford.

Greenspan helped guide the longest economic expansion in U.S. history, lasting from 1991 to 2001. Growth averaged a 3 percent annualized rate during the former Fed chief’s tenure. The $13.8 trillion-U.S. economy will probably slow to a pace of less than 2.5 percent on average from now until 2030, Greenspan forecast in the book.

The former chairman isn’t as specific in his predictions for other countries. He doesn’t mention any besides China, the U.K., France, Germany, Japan, Russia and India, spending about five pages in his final chapter on the outlook beyond America.

`Political Freedom’

In China, Greenspan sees economic growth in the context of capitalism and democracy potentially replacing Communist rule. Already, the country’s “embrace of free-market competition” has it “on the path to greater political freedom.”

China’s economy grew 11.9 percent in the second quarter from a year earlier. The world’s most populous country surpassed the U.K. in 2005 as the fourth-largest economy. The value of China’s gross domestic product is $2.6 trillion.

“No matter what official rhetoric may be, the tangible lessening of power from one generation of leaders to the next gives hope that a more democratic China will displace the authoritarian Communist Party,” he wrote.

Greenspan devotes the most space to the U.K., which he praises for a “remarkable renaissance” since former Prime Minister Margaret Thatcher took office in 1979. London, he said, is “arguably the world’s leader in cross-border finance,” though New York remains the financial capital of the world.

British Leaders Praised

He also commends Blair and Brown for tempering the Labour Party’s “historical Fabian socialist ethos,” allowing foreign investment and acquisitions of major British companies. The Fabian Society was founded in the late 19th century to advocate for gradual socialist change.

“If Britain continues its new openness (a highly reasonable expectation), it should do well in the world of 2030,” Greenspan concluded. Greenspan is an adviser to Brown.

For Continental Europe, either output per hour needs to speed up to a rate that may be “out of reach,” or attitudes toward immigration must change. The outlook for the region “will remain unclear until it concludes it cannot maintain a pay-as-you-go welfare state that requires a growing population to finance it,” Greenspan opined.

Merkel, Sarkozy

Still, new leaders including French President Nicolas Sarkozy and German Chancellor Angela Merkel have views that make a “resurgence appear more likely,” Greenspan wrote.

He is less bullish on prospects for Japan, Russia and India. Japan is “strongly resisting immigration” and will have difficulty raising productivity growth, Greenspan wrote.

Russia is benefiting from its energy resources, yet with a falling population and President Vladimir Putin’s “selective enforcement” of laws, the country “has a long way to go before it joins the club of developed nations,” Greenspan said.

India is fettered by bureaucracy and still has three-fifths of its workforce in agriculture. That may keep the country from becoming as prominent as China, though the “glitter” of India’s services industries “is just too evident to dismiss,” he said.


Greenspan Says Euro Could Replace U.S. Dollar as Reserve Currency of Choice

Report: Former Fed Boss Says Euro Could Replace U.S. Dollar As Favored Reserve Currency

International Herald Tribune
September 17, 2007

FRANKFURT, Germany (AP) — Former U.S. Federal Reserve chairman Alan Greenspan said it is possible that the euro could replace the U.S. dollar as the reserve currency of choice.

According to an advance copy of an interview to be published in Thursday’s edition of the German magazine Stern, Greenspan said that the dollar is still slightly ahead in its use as a reserve currency, but added that “it doesn’t have all that much of an advantage” anymore.

The euro has been soaring against the U.S. currency in recent weeks, hitting all-time high of $1.3927 last week as the dollar has fallen on turbulent market conditions stemming from the ongoing U.S. subprime crisis. The Fed meets this week and is expected to lower its benchmark interest rate from the current 5.25 percent.

Greenspan said that at the end of 2006, some 25 percent of all currency reserves held by central banks were held in euros, compared to 66 percent for the U.S. dollar.

In terms of being used as a payment for cross-border transactions, the euro is trailing the dollar only slightly with 39 percent to 43 percent.

Greenspan said the European Central Bank has become “a serious factor in the global economy.”

He said the increased usage of the euro as a reserve currency has led to a lowering of interest rates in the euro zone, which has “without any doubt contributed to the current economic growth.”

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