Greenspan Speaks on the Housing Inventory, Asset Bubbles, and The Dollar

Below is a short summary of interview from CNN.Money with Alan Greenspan. Text in bold is my emphasis.

Former Federal Reserve Chairman Alan Greenspan said Tuesday that cutting excess home inventories in the United States is key to stabilize the financial system at home and the rest of the world.

"The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory," Greenspan told a business leaders' forum videoconference in Tokyo from Washington.

The former Fed chairman urged central banks to avoid suppressing asset bubbles, which is "exceptionally difficult" to do.

Greenspan also said the global economy can handle higher commodity prices through strong monetary policies by central banks and that he expected major increases in commodity demand from rapidly developing nations.

Central banks avoid worldwide inflation by maintaining monetary tightness at appropriate levels, he said.

"I'm concerned that we were moving from this 20- to 18-year disinflationary period and beginning to move in the other direction," Greenspan said.

Despite crude oil prices being above $90 a barrel, the global economy is still functioning, he said, indicating that the "underlying structure is doing well."

Greenspan also predicted that the U.S. dollar will fall further against East Asian currencies in the long term if technological innovation boosts productivity, standards of living and therefore growth in the region.