Oil prices soar above $50 a barrel with little prospect of returning to more normal levels anytime soon. Not to worry, says Fed Chairman Alan Greenspan, new sources of energy are just over the horizon.
House prices continue rising several times as fast as everything else, driven by record levels of household debt. Not to worry, says Greenspan, the debt is manageable and housing isn't susceptible to speculative bubbles.
The nation's current account deficit heads toward 6 percent of gross domestic product , a level unheard of for a major industrial economy. Not to worry, says Greenspan, financial markets will gradually bring things into balance.
The urgent question before us today is: What has the chairman of the Federal Reserve been smoking?
I will leave it to others to speculate on Greenspan's motive for taking his one-man Dr. Pangloss show on the road in the months leading up to a hotly contested presidential election.
But what are we to say about a Fed chairman whose biggest economic concern a few years ago was that the government was projected to run such a big budget surplus that it could eventually force the Treasury to invest some of it in corporate stocks and bonds? There aren't too many people worrying about that one any more.
Of course, one reason we're worrying about record deficits rather than record surpluses is that Greenspan gave his seal of approval to a series of tax cuts that the country could ill afford.
Two possibilities present themselves:
Greenspan figured that, once the tax cuts were in place, Congress would cut spending to match, in which case he's more of a fool than anyone imagined.
He knew all too well that the spending cuts would not follow, in which case he's a scoundrel.