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When former Federal Reserve Chairman Alan Greenspan speaks, people listen. The guru of modern day economics, he orchestrated many of the post bubble exits and kept the positive economic conditions available for positive corporate results during his 18 year tenure, from 1987 to 2006. Many have criticized him for his policies, but we must realize that the Federal Reserve is the last to act when it comes to economic policy for the country. When the elected politicians decide to outsource their responsibility to establish economic policy, the only group left to act is the Federal Reserve. Unfortunately, the Federal Reserve does not have all the avenues available to use in these conditions. Thus, they are limited in their response when compared to the elected politicians.
LEAN SIX SIGMA TEACHING POINT: In his new book, “The Map and the Territory,” he has re-examined his views on the economy and how he analyzes data. This is a critical point. One of the best thinkers of our day admits to a continuous improvement process to improve his forecasting and understanding of the economy. It is interesting to see his view of the 2000s dot-com bubble. Although this produced a huge financial collapse, there was almost no evidence of economic impact. The main evidence of finance impact with bubbles is the issue of equity coverage of debt (leverage). Without equity backing the debt, the bubble will create a downward spiral as seen in 2008, unique to many of the recent bubble of the past 50 years.
One of his analytical points from research is that bubbles are a function of human nature and will continue to occur in the future. His preliminary hypothesis concludes that bubbles are produced directly from a period of stable economic activity at low inflation. If this is the scenario, central banks do not have the capability to quell bubbles.
In his analysis of the post 2008 economy, the unique nature of the recovery indicates the projected GDP levels are short from actual due to the lack of economic activity in long-lived assets. This is the evidence from the past 10 major postwar recoveries except this one. This was detailed in his white paper “Activism”. This fear discounted long-lived assets heavily. His analysis of the root cause and exposed by his statistical analysis is the government deficits suppressing the national savings rate.
For all Black Belts, it is a good idea to understand a master of his craft. Read his white paper on “Activism” and his most recent book “The Map and the Territory”. We might pick up on some new understanding of analyzing mega-data and implement in our daily problem solving techniques.
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
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