Tuesday, October 2, 2007

Alan Greenspan's book tour

Former Federal Reserve Chief Alan Greenspan has been promoting his book "The Age of Turbulence" for the last couple of weeks. Among other things, he is talking about his reasons for supporting the Iraq invasion and his assessment that the Chinese stock market is a bubble waiting to burst. On the question of his support for Iraq invasion, he explains that he was convinced Saddam Husain would block the Strait of Hormuz if not removed from power. I think he's just flat wrong on this reasoning.Other than the US or Europeans, the only power that had the capacity to close the Strait is Iran. The removal of Saddam has, in fact, strengthened Iran significantly and made it more likely that the Strait would be closed in the event of war in the Persian Gulf involving Iran.
On the question of Shanghai bubble, he is more qualified than most but I still think he is wrong. The Chinese economy is very strong and growing rapidly. China is the factory of the world and it is developing a very large consumer class of its own with a pent-up demand not too different from the US consumer demand right after the WW II. So the Chinese markets are backed up a strong and rapidly growing economy to justify high valuation of its stock.

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