and 9 p.m. on sunday and 12 a.m. on the day. you can also watch online. go to booktv.org and click on the "after words" in the book tv series and the topics list on the upper right side of the pa page. .. so we are honored to have you

here tonight. ed and a half bus a decade. [laughter] [inaudible] c. i'm sure. in addition to being a renowned economist that greenspan was once an inspiring jazz musician and he is special to us here at the press club because he is -- andrea mitchell houthi national press club honored just a couple of weeks ago for a lifetime achievement in journalism so we are honored to have him in our audience for that and we are excited to have you back. i also want to let our audience know that if you are tweeting tonight the hashtag is the map in the territory so please go ahead and use that hashtag with abandon. would you like to say a few words or should we go right into the discussion? >> go right ahead. >> all right. let's start by talking about the end of the book. you talk about a lot of concern

with the political system that we have today and of course shortly after the book came out the government was shut down so you are quite prescient to forecast that quite well. what do you see coming next? do you see any prospects for improvement in the political situation or not? what are we in for? >> i think we first have to define what the problem is and it is not unique to the united states. we have seen this before in our history but the best way to define it is to recognize that a democratic society such as ours with more than 300 million people in it, requires to function effectively in a civil manner. certain sets of principles on which we all agree and that turns out to be the bill of rights, freedom of the press, freedom of speech, freedom of

assembly and pretty much everybody agrees with that. indeed the people who do not are not here or are certainly not here in a witch -- in a way we prefer which they would come and behave so those are the fundamental beliefs and they are so sufficiently important that they are uncompromised double. and it's that fact which locks us altogether. the problem is that the rest of the decision-making which makes up a civil government largely is made up the issues of compromise without compromise you will have no real fundamental rule of law. you will not have the society which can function. so the issue here is that it's not a retort of term. it's an essential term for

society for which to function and what we are finding is that there is too high a proportion of issues in the public domain which are becoming uncompromised double, and that means that the system will grind to a hault as indeed has been showing it can do when we have too much in that area and that cannot continue indefinitely. the issue really is novel to my experience and i have been in and out of washington since the late 1950s, and it has never been this way. when you start digging into the basis of it you can see it in the history. when i first arrived on the scene here, people were invited to dinners by people like joe

alsop or katharine graham and those dinner parties were ritualistically 50% democrat and 50% republican. that continued on for quite a while and indeed most of the social gatherings were of that nature, but most importantly, everybody talks to each other. i remember for example i was in the ford administration in the white house and jerry ford would rail against tip o'neill's positions on issues from 9:00 a.m. to 5:00 p.m. and tip o'neill would come right back with his singers to jerry ford. at 6:00 p.m. tip would show up at the west wing of the white house to have a bourbon with his old buddy jerry. that does not happen anymore and we find that the parties are 98.

[inaudible] there is very little cross fertilization of ideas or realistic compromise and something has got to give. i don't know what it will be but i will tell you this, unless and until we do that we are going to have these types of crises which are showing up periodically for an indefinite period. right now in discussions with respect to what essentially is going to be the budget deal, we find out that everyone is thinking well we can do a little bit. what it needs is something far broader. as i have always said this problem we are dealing with day in the economy and the budget was essentially solved by simpson-bowles back several years ago and i recall very vividly saying when i saw that

proposal come up from a bipartisan group of people, and was very rapidly accepted by all professionals, saying this is terrific. we can all work from here. it never happened and the reason it never happened basically is that we have this fundamental sort of rupture in our political system. so the question is how do we get back there? >> pain for us the picture will that we might see if we do keep having a series of shutdowns. we only have a deal until early 2014 of course. what happens to the u.s. economs if this becomes not the first shutdown but one of many? >> i think there is a little bit of misunderstanding on what the

issue of the shutdown is. remember there are's continuing resolutions which essentially keeps the government going but there is a broad elements of discretion and that, and that never shuts down any day except a few divisions. but remember, the whole civilian pentagon, defense personnel were furloughed at the point of sequestration so that's not the issue. and it won't be the issue. the issue is that debt ceiling. the debt ceiling is an anachronism from 1970. few people don't -- what people don't realize is it something to enhance expenditures, not to curtail it is prior to world war i, every single appropriation had to be passed as a law in both houses and signed my the president.

the result of that was you had a physically impossible situation when we got into the war. there was this very large buildup in the military so the solution to that was to substitute a debt ceiling which limited the amount of expenditure and the amount of debt that could be taken out and in so doing that what occurred was it got constructed into the system until today its particular version is or the very peculiar definition of what the corporate debt is to essentially restrict spending -- not such an issue of restrict teen spending, restricting borrowing to a certain amount and indeed you have the ceiling by definition that is zero. and that means you have to get today's market for example, actually that debt ceiling grabs

hold of you will have to cut spending by a significant amount or raise taxes. in order to meet the debt ceiling. and as you can well see there is not desirability on either side of that. so the congress is caught in a problem of arithmetic. that is, in order to meet the debt ceiling you have to either cut spending or raise taxes than they choose set lee to do neither. and so what happens is the president is required as the chief executive officer and it's unclear what the e. -- legalized x. of all of this are, to somehow pass it down to a level which meets the requirements. the problem here is people

making the distinction between default on the debt and default on other government obligations, mainly entitlements. forfeiture of the debt is a very dangerous sort of thing to do. that occurs when you cannot repay the debt when do but there will still be a huge amount of revenues coming in, even in the context of the balanced budget amendment. so if the president wanted to segregate funds for paying interest the bankruptcy of the government would go away. that raises a lot of clinical problems because you say yes you are paying interest to the billionaires who are holding government debt and depriving people who are on food stamps from getting their entitlement.

and that is an impossible political position to be in. but if the law stays in place, somebody has got to make that judgment because there are no winners in this situation. the bottom line up all of this is the debt ceiling is an anachronism should not exist in and the reason it shouldn't exist is the congress appropriates phones. we have a tax code and if you do a little arithmetic you can determine what expenditures are going to be for the fiscal year and what taxes are going to be. we don't screen ourselves to subtract one from the other to tell us what he net change in the debt is so therefore you know exactly what the congress and the president are signing into law have essentially said as the level of debt.

it's invariably a number higher in today's context than the ceiling that is implicit in the law. the problem here is you have a contradictory legislation. legislation which both houses of the congress and the president agree under certain set of statistics with the fiscal situation will be, and then nothing further needs to be done because it's already past. we are not taking the debt ceiling which says what you have just enacted is invalid by an earlier law so you have contradict her legislation. this is the reason why the debt ceiling is creating such a problem that should never have existed but having existed at it should have been appealed the end of world war i. >> given the political situation, what is your outlook

for growth in employment and inflation in 2014? >> well, as i outlined in the book, and this book covers an awful lot of subjects. the political issue we just discussed is one of them and the issue of the economic outlook is another and then we have all sorts of other things. the fundamental thrust of this book is to say that the old assumptions which for example i and all professional economists of notes believed that human beings do behave irrationally. we basically do so in a random manner and therefore only rational decisions were their way through. in other words you cannot produce a steam engine by somebody's emotional intuition.

it's a conceptual issue which requires reason and that is basically demonstrated that all economic growth must fundamentally reflect the actions that are rational but it doesn't necessarily therefore follow that is true longer-term, that people acting irrationally is irrelevant especially when as i develop in the book, most of these things are fear, euphoria, instinct and the like. they basically create the system of systematic relationships. people always respond. individuals respond differently but a threat to your life and limb for your net worth, fear is the response that comes up and you can't avoid that. how you handle it happens to be a different thing but what can

be a model as i describe in this book is how to put those types of problems into the econometrics, the data systems that we have in our models which actually had we done so in knew what we were doing would have told us we were having at the crisis coming up. we all knew that we had a double. everybody knew that. an issue that nobody got was on september 15, 2008 was the day the bubble would break. i would say virtually everybody in the financial world knew that there was a bubble there and it was going to burst, but they were smart enough to get out before it got too big. the trouble is, they all believed that they could move in minutes or hours ahead of everybody else.

but they didn't realize is they didn't have that much time. everybody was unable to end the whole system collapse instantaneously. as i point out in the book, even though it did not create an economic depression the way 1932 did, it was arguably the greatest financial crisis the globe has ever known. it's the first time ever not the prices and assets went up or down at the fact that the markets shut down. they never shut down during the great depression crisis. they went down but the markets were always open. following september the 15th, those markets shut down. trade credit disappeared and you could see both stacking up in the port of singapore because

they couldn't pay their debts. you could see all sorts of things going on and crumbling. it was the type of crisis that we have never experienced. the last time the markets actually shut down was 1907 for one day. they were back the next. this was a much broader issue and we responded to it because i think it was necessary to do so and i think we don't know for certain but i think those actions stabilize. i know part was considered a political disaster. it wasn't. it was an essential action taken by government to substitute sovereign credit for what was the disappearance of private growth and the result of this was that we got into a situation where government activism in my judgment became --

we tried to do everything. every time there was one little thing going wrong we took action and i think the evidence is becoming increasingly in clue sibley to show those actions by creating uncertainties in the marketplace especially for the investment in capital goods were sufficient to suppress the level of economic activity because as i very well remember because it was part of my job in government was capital expenditure pro-creations projects within companies. the one thing we were always acutely aware of was it wasn't so much for forecasts and the prophet and the usual statistical sense but the issue of uncertainty was critical. it turns out that the degree of uncertainty as a measure in the

foot became extraordinarily high especially for very long term investments and they collapse. housing collapse, nonresidential welding collapsed, all sorts of assets that we produce in the gdp which had a life expectancy of more than 20 years fell by 50% and have only gradually recovered now. but that 50% of sent essentially a% of the long-term assets, four percentage points. that is the unemployment rate and that is what created the problem. to this day we haven't cured it. the uncertainty is still a major overhang and suppressing activity. there are some signs and i don't want to get too complex but we have one important issue which is very fortunate.

a cousin of the collapse in 2008, stock prices fell very sharply and stayed down for quite a long period of time. because the long-term uptrend in stock rises as i coach into in the book is about 7% a year so that names even though stock rises have come back to where they were in october 2007, we have just lost five years of trend growth. the effect of which is by all object of measures stop prices are actually quite low by historic standards and the pressure is for prices to continue to move up. that is important because even with the uncertainty that is built into that, the prices are still suppressed and his forest

i can judge at this particular stage it's the only thing that is keeping the economy void at this point because they point because i didn't want on to demonstrate how asset crisis are far more an indicator of finance. they have a major impact on real economic activity and the like and the uncertainties that have been engendered as a consequencf the crisis and the very considerable activism which has created a major uncertainty especially with the deficit, are what the tax rates are going to be in the far distant future. if you don't know what a tax rate is on a capital project in which you are in the process of discussing to implement that project is going nowhere and indeed that is what is happening so the problem is when it asks

what is the outlook, it's a very long answer to a very short question. going to depend very critically on whether the degree of uncertainty will be brought down. i think there are some signs that it's happening but the resumption of thing is going to come back very fast i think is unrealistic. fortunately we have asset prices housing prices of course has moved up quite significantly and they are still moving but remember that single-family housing starts have come back a great deal but there are still only one third of what they were at the top. you can do the same thing by going project by project in the business investment areas. i have a specific ratio which i use which is very useful, which is the ratio of what private

business capital investment is to liquid cash flow or more specifically illiquid fixed asset investment to liquid cash flow. the extent to which businesses are willing to take that liquid asset and put it into a the assets which they can't sell tells you how confident you are about this issue. that number until very recently was at the lowest level since 1938. it is a measure of how severe the issue of uncertainty has been and it's only sense come up little bits. we still have a way to go and i'm not exactly over optimistic about where we are going. i would be surprised if we fell into another deep recession but it's hard to see either in the

united states or indeed the rest of the world moving toward any major recoveries which will bring us back to the pre-2008 crisis. >> you took us through a bit of the history there. going back to begin the fewer term as fed chairman ,-com,-com ma knowing what you know now five years later, is there anything you would have done differently? >> well, yeah if we had omniscience it would have been terrific. first of all let me just say the issue of bubbles are a function of human nature. we will never prevent them. the irony to a central banker and many comments in the transcript of the market plan

which i think are very sensibly issued only five years after-the-fact, but there's also discussions that there in which we are all talking about bubbles but no one is saying anything publicly because we are afraid it will cause problems. but the main issue about bubbles is that a necessary condition is that the economy is behaving very well. inflation is suppressed, that interest rates are modest, there is no evidence of instability. those conditions are necessary and i would say sufficient conditions for a bubble emerging. it happens 100% of the time. but most bubbles when they break do not have significant economic impact. we had it a bubble break

remember october 19, 1987. the dow jones industrial average went down 22% in one day. it had never gotten even remotely close to such a crash. the economy had thought was going to be in real trouble if we didn't solve something quickly. it basically shows in retrospect almost no signs of weakness. then again in the so-called.com boom -- dot.com him from 1993 to 2000, that was a big stock market boom it will out in the year 2000. the markets crashed and there were huge capital losses by individuals investors and the like. the effect on economic activity was virtually zero. the reason essentially as i explain in the book is a necessary condition for a crisis

bubble is the those who hold the so-called toxic assets in the dot.com boom it was stock, our holding on debt or leverage because the real problem of the financial crisis, and i want to say fundamentally the crisis of all economic cycles is contagion and most specifically its bank defaults. so if you don't have defaults by banks or others, there is no contagion. contagion incidentally is sort of a domino effect of one person going bankrupt, bankrupting somebody to who he owes money etc. and you get that domino effect. that is a critical condition that is required yet the type of

crisis that happened in 2008, 1929, 1907. those things happen basically because there is debt. so if you go back and ask, well what could we have done differently, the question is, could we have stopped the rise in debt which we knew what was happening. the question is, how? if you have legislation that says you have to lend, remember that there's a huge amount of legislation which we call the affordable housing act and as i've pointed out and you can see it's politically acceptable to a substantial part of society that regulations ahead which required

fannie and freddie to hold a very significant amount of the total assets in affordable housing loans. the only way they could do that was to basically buy at wholesale which means what we called securitized sub prime loans. without getting into the detail which i did get into in the document in the look is they moved in a market in 2003 -- 2002 and 2003, they picked up half of all the net new issuance of sub prime securities. and because they had to have mortgages behind them, in order for people who wanted to sell those securities to fannie and freddie, those are kritsch firms

in turn had to get actual mortgages to get under the so-called securitized banner, the funding for the securitized loans. the problem with that is that these sub-prime mortgages which actually i think were quite safe in the early years, they had fixed rates. they had somewhat higher interest rates but their very nature was they were issued to people who could not afford the 20% down payment, but could afford the monthly payments. what the hud regulation and forced her forced the financial community to do was to create a whole new set of sub-prime

mortgages. by definition you couldn't change the down payment. you could only change the monthly payment and the only way to do that was to go to adjustable-rate loans. low in the hold if you look at the date of the mortgage bankers association the proportion of adjustable-rate mortgages and i think 2003, 2004 went straight up and within a very short period of time we found a goodly number of those couldn't make the first payment and that is what set the whole thing off and created a boom which i don't care what type of monetary policy you have, you are not going to prevent that from creating ultimately the problems in which it did. so could we have done something different or more exactly could the regulators have done

something different? the only thing we could have done differently which we weren't able to do for reasons i will tell you is what i argue for now. we need a lot more capital in the banks. the problem unfortunately is in 2006, the federal deposit insurance corp. essentially speaking for all the regulators, the federal reserve, the fdic and others, said that more than 99% of american banks were highly capitalized in the highest of standards. it would have been very difficult to make any form of legislation that would have raised the capital requirements. and so the problem basically is if you are sitting there as a central banker knowing that you have just been through, from

1983 to 2005, 2006, eight period of extraordinary stability and the euphoria is starting to build, because it's not altogether crazy to believe that this long period of stability, that the next six months are going to be stable. it's not craziness. the problem unfortunately is what happens is the system will break down. it will not only break down but an unnecessary condition for when it breaks down is that nobody expects it to happen. there aren't awful lot of people who are out there saying you know we forecast -- with a forecast is what everybody forecast. we were in a bubble and it was going to break. i know of none but the thought

september 15 of 2008 was the period. when i go into the book i explain why it happened that way. i argue that it is people anticipated that actual date it would not have happened and indeed the real problem that we were supposed to get involved with was the so-called current account deficit and lending to foreigners. that was the next crisis of the exchange rate for the euro and the dollar turned in such a manner so rapidly that all the imbalances disappeared and the one thing that didn't cause the crisis was the so-called current account deficit but what did was fundamentally unforgettable. is there anything that we the fed or other regulators could have done? the answer is nothing i can see, and thus we have is i hope you

have an immediate future and major increase in capital requirements for commercial banks. >> going from the past two looking forward can you give us your assessment of janet yellen as the next fed chairman and what would it mean to have the first woman in that position? >> those are not two separate issues. it's the same person. so the only one. >> i have worked with janet yellen for number of years and remember she was on the federal reserve ward when i was there and she subsequently became president of the san francisco bank. when she was metaphoric meaning she was at the federal market meetings and she is an extraordinary economist. i found very helpful to me because she was a professional academic and they had variance

variance -- very significant insights into various different new series coming up and the like in academia.

but, that to me is -- my wife would certainly agree with that. [laughter] >> we are here at the national press club so give us your assessment of the media coverage of the crisis. there are obviously journalists that didn't all see it coming either. what was the role the media played in covering the

developments before and since 2008 and what did the media miss? >> well i am scarcely going to sit at the national press club and discuss the national press. it's difficult to say because everybody at the same problem. it wasn't an issue of whether or not you can do these big model structures with all sorts of very fancy mathematics which i don't think any person i know in the press corps would say that as i say in the book it didn't matter all that much. what we are dealing with his human nature and i know this is a radical statement but press

people are knowledgeable because they are human beings. the issue here is very importanl retrospectively whether in the press corps or whether we are economists we all sensed the same issues of euphoria fear and elation. i think that press cores probably on this issue as i say the same level as the most highly-skilled economic technicians. some of them report somewhat better than others but in general i have never had a problem seeing the press missed the real issues. some are not reporters.

some are commentators and that is a different group but for those in the press corps who endeavored to be objective enough to have political biases, i think they did an extraordinarily good job in general and i think it's largely because there is an attempt to say what is really happening is what policymakers would like you to believe it's happening. >> we talked in the beginning about the polarization of congress. he just mentioned the rise of opinion oriented media. do you think that plays a role in the partisanship that we see in congress contributing to the bigger picture of problems that we talked about? >> well partisanship is something which has always existed. in the book i have certain charts which i take for example

the 2010 congress and the four caucuses, democrat and republican house and senate and all four have the same pattern. they all go up and down but the center of it being for example in the republican party, those on the far right from the tail end but the middle of the caucus is sort of medium conservative and that spills down and an actual bridge between republicans and democrats is virtually nonexistent. there are members of either the house or the senate which are really in the middle and they never have been. i go back and i picked up for example the four caucuses in

1900, 1896 congress. it looks the same way. the difference essentially now is not there is snow partisanship. there are differences but it's pretty much the same if you look at the date of. the thing that bothers me is that is not what the issue is. it's the issue of getting together and record rising that there are fundamental values which we all have which are indeed uncompromised bo and nobody requests us to compromise. the problem is as i mentioned at the very beginning that there is much too much in the area of public policy which should he subject to compromise indeed must be subject to compromise if you were going to get a viable form of laws in which

300 million people can civilly live. >> you are of course still actively working, still forecasting, still modeling. what are we missing now? what are you seeing that we the rest of us not -- might not be seeing yet? >> there's a book that came out a week or so ago that explains that in some detail. >> a lot of people have just got the book and hopefully they have been listening to you before they read the book. give a little synopsis. >> as i said the fundamental issue was what came up as i looked in the mirror one morning and i said how when the world if we all miss this so badly?

it was not only the fed models. the imf models didn't work. jpmorgan was forecasting that the american economy indeed the global economy was going to be rising during the second half of 2009. it obviously didn't. and so it wasn't the issue of some yes in some no. i do not know of a single standard model which captured the actual point at which the bubble would break. so i said what is it which made us fail here lacks the book is essentially a detective story. i go through step by step starting with the presumption that i like everybody else assumed that human irrationality while significant was essentially random and that

therefore people disregarded it and then went on to start to ask a question is that statement true? i prove to to myself the views that i held earlier were just wrong. it was an interesting experience to look in the mirror and say you were wrong, but i was. and indeed so were all of my other colleagues who thought the same thing. so the question is can we integrate -- there is a relatively new economy cope behavioral economics which don't apprise to build on an economic model. we must point out that there are a lot of not inconsistencies but very significant differences in the way people behave in the real world. and the way the models develop them.

most economic models generally are all based on probability distributions and issues and how chance -- the whole issue of gambling gets surprisingly analyticaanalytica l in economics and developing a lot of hours to two stick of data and what they do. one of the things that he came very obvious to me and that struck me is when i realized that the so-called probabilities distributions of how economic outcomes are supposed to occur and that basically is standard all the way back. they were wrong and the one

example that struck me and i think everyone will recognize this ,-com,-com ma you go into a physician's office and you are about to have a procedure and ask what is the probability that something can go wrong? and he says we have an extraordinarily large amount of data on this exact question. the probability that something could go wrong is one in 10,000. you walk out the door of the doctor's office and it feels like a/50. there is no way you can avoid that sort of dies but when you take that bias and put it into economic terms, you get what some of you may understand as the tail which is a very extraordinary distortion of how probabilities are, of how people

respond to events and they do not respond in the sense that everything is random. they responded in a systematic way. this book endeavors to define those of various aspects and while i don't actually construct the full model, i do outline basically what is involved and i go through things like, i have a chapter on start -- stockmarket forecasting and i apply these principles to the way markets and stock prices behave. part of it is developed from my own experiences. before i got into government i decided at one point i wanted to do trading in commodities should bought a seat on the exchange. my office was right next door to

the floor and i would go to the opening and scream and everybody around the ring and then i would go back to the office and have lunch and then at the close, i thought i knew a great deal about the way say copper prices and zinc prices which was what was being traded, i knew a great deal about how they work and i found that i made a reasonably good nonprofit when i traded as an outside customer using your brokerage firm. at the end of three months as a member of the exchange i made zero and i realized in retrospect that what those people around the ring knew that i didn't was human nature, how people react and they can spot when somebody is overly anxious

to sell which is exactly the time you want to buy from them. i won't say i got fleeced it was an experience that induced me to sell my seat right away and go back to doing something with china something about. but that was really the first time i became aware that there was something very unusual about how we behave. the trouble is it's an awfully long time to penetrate. but as i said, i'm not there yet this morning i wrote a copy for a potential opted piece that i'm going to write. so you get into that type of position i am in, once you start to think about something i find i have the same degree of

curiosity i had as a 6-year-old and i love it. it's a fascinating experience and i try to make it, leaving all of the heavy statistics saying very specifically that i have written a narrative in a way which it doesn't require an understanding of the human matrix but a lot of the conclusions are -- i come to our politically controversial and the question is not what your ideology is. ideology is a useless abstract. what are the facts and what is the syllogism you are using? if i for example am wrong with a particular position i'm taking that is because if the fact is

wrong you are making the jump illogically from a to b and that is false so i can layout the exact ross says by which i would say quote group certain issues or find them improbable. i try to do narrative as best i can but most anybody who has any interest in our political economy could understand. >> we are almost out of time but before we wrap up one last question. tell us what is next for alan greenspan? you have just gone up all of your assumptions from decades past and you are at 87 years young and still obviously working hard, like you said thinking about new things every day. go back to commodities trading or something else? >> i don't look a day over 85. [laughter]

it's hard to tell. i am sufficiently an astute statistician. no, i will not live to 175 so somewhere between now and then it will come to an end. i presume it to point i will still be trying to solve equations and let somebody else take over from there. >> thank you so much for being our guest tonight. let's give him a hand. [applause]

>> about every 40 or some form of global power has tried to come in and dominate the afghan scene and control it and use it for its own purposes. a there have end. so if afghan histohe