In his 48-page paper presented on March 19 to the Brookings Institution, former Federal Reserve Chairman Alan Greenspan now blames the collapse of the Soviet Union and the resurgence of the Chinese economy as causes of the Great Recession that was ushered in on his watch. And his arguments have just enough plausibility to be considered, if only briefly. But looking more closely is another matter.
When the Soviet Union collapsed, millions of workers were then free to “enter the global marketplace,” creating huge demand for consumer goods. And with the Chinese government allowing a modicum of free enterprise to placate their workers, many of them have created such significant savings that many billions of dollars were looking for a home. And consequently, many of those dollars returned to the United States in the form of mortgage capital that helped fund the housing boom. Greenspan said, “In short, geopolitical events ultimately led to a fall in long-term mortgage interest rates that in turn led, with a lag, to the unsustainable boom in house prices globally.”