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Tuesday, 19 November, 2002, 20:39 GMT
Greenspan applauds world economy
Federal Reserve Chairman Alan Greenspan
Greenspan: Despite losses, US institutions have thrived
The world economy has proven itself capable of withstanding extreme shocks, and is better able to withstand future crises, the US central bank chief has said.


Unless there are statutes out there which focus on [corporate scandal], it will just start to happen again

Alan Greenspan, chairman, Federal Reserve
Federal Reserve Chairman Alan Greenspan, in prepared remarks to the Council on Foreign Relations, noted that the US economy continued to strengthen.

"Despite the draining impact of a loss of $8 trillion (5.06 trillion) of stock market wealth, a sharp contraction in capital investment and, of course, the tragic events of 11 September, 2001, our economy is still growing," he said.

Such episodes suggested that modern economies were better able to withstand spontaneous shocks, the Fed chairman said.

"Importantly, despite significant losses, no major US institution has been driven to default," he added.

Risk-taking

Nonetheless, Mr Greenspan said he was "appalled" at the level of corporate scandals that have roiled US markets this year.

"It has clearly undercut the ethical base of the capitalist system," he said.

"Unless there are statutes out there which focus on this, it will just start to happen again, and you want to avoid that."


[T]he world economy already has become more flexible irrespective of how events unfold in the weeks and months ahead.

Alan Greenspan

But he warned that despite recent revelations of corporate malfeasance, governments should be careful not to over regulate markets.

In comments essentially mirroring those made in London on 25 September, Mr Greenspan said risks should be managed rather than eliminated.

He argued that risk-taking was an engine for economic growth, while overregulation could stifle it.

"The extent of government intervention in markets to control risk-taking... [is] a trade-off between economic growth, with its associated potential instability, and a more civil and less stressful way of live with a lower standard of living," he said.

Even as he remarked on the US economy's ability to continue to grow, Mr Greenspan nevertheless did not discuss its near-term outlook.

To a lesser extent, such results have been the rule around the world, he said.

Greater resources

Even as he praised the resiliency of the US and world economies, however, Mr Greenspan warned the boom-bust cycle of the previous decade may not have yet concluded.

"But the already clearly evident increased resiliency arguably supports the view that the world economy already has become more flexible, irrespective of how events unfold in the weeks and months ahead."

Mr Greenspan credited a rapidly evolving financial system that has spread risk more widely and given borrowers a greater selection of institutions for loans.

"If risk is properly dispersed, shocks to the overall economic system will be better absorbed and less likely to create cascading failures that could threaten financial stability."


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

13 Nov 02 | Americas
27 Sep 02 | Newsmakers
12 Sep 02 | Business
30 Aug 02 | Business
07 Aug 02 | Business
16 Jul 02 | Business
08 May 02 | Business
03 May 02 | Business
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