For a man who once famously remarked in his testimony before the US Congress "I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said, " the postFed Greenspan of today has gone to pains to attempt to clarify his record on economy.

A funny thing is, he really did not have to do this. At least not in the context of the present-day events. The causes of the current financial markets debacle has nothing to do with the real side of economy.

Instead, the culprit for the contagious disease of waning global liquidity supplies and grossly mispriced risks on the balance sheets of world's largest financial institutions is the old fashioned inability to see the underside of all the government spending that has swept the world over the recent 11-12 years.

"History has not dealt kindly with the aftermath of protracted periods of low risk premiums, " Greenspan once said. He was right then. Cheap credit spells careless allocation of resources. It also drives up inflationary pressures, both in terms of wages and consumer prices.

The end result is that the vital link between productivity and remuneration is broken, leading in the short term to erratic business costs and in the longer term to lower relative returns on investments in skills and human capital.

But the real problem with cheap credit is that it often quietly underwrites massive spending sprees by the governments . . . risking an economic disaster once economies slowdown.

These risks are completely mis-priced in the financial markets that rarely look at the structure of long-term spending commitments by the states.

Between roughly 1995 and 2006, government spending in the OECD countries has accelerated by an average of 5% per annum (in Ireland, we almost doubled this figure).

When considered relative to the economic growth, these figures reflect the fact that over the last 12 years most governments in the developed world have managed to leverage the future taxpayers with current generations' liabilities at a ratio 1.5:1 of future costs to income. In Ireland, this 'mortgaging' of the young to pay the wages of the public sector and a massive army of quangos was at a rate closer to 2.5:1.

Put into perspective, cheap money that fuelled our construction boom and thus flooded the exchequer coffers with 'painless' revenues has resulted in the Irish state taking on spending obligations that are comparable to loading each and every taxpayer, with the equivalent of a second mortgage on a house. In the times when the economy was booming, that was slightly careless.

At the times when the economy is going into a noticeable slowdown, this is outright reckless.

Government spending is not something that can be pared down with ease. In Ireland, the problem is further exacerbated by our clientist political system dominated by the powerful interest groups and trade unions.

Greenspan has expressed his frustration about expanding social programmes in the US and singled out the insolvent Medicare as the core problem. His concerns centre primarily on the Democratic presidential candidate Hillary Rodham Clinton who unveiled a universal coverage healthcare proposal that will cost the US taxpayers in excess of $110bn a year.

Worrisome as these plans might sound, they pale in comparison with the runaway public spending that we practice in Ireland. As the Irish economy is slowing down, the Government is firmly on track to break its own projected spending increases of 11% this year alone. The exchequer spending grew by a massive 13% in 2006. In a country with one of the youngest populations in the developed world, virtually zero unemployment and no meaningful defence budget to speak of such increases in spending would have caused Greenspan some sleepless nights.

And this brings us to the last point on Greenspan's memoirs and the events of this week. Greenspan's defence of his tenure at the Fed hardly makes sense, given that out of 36 interest rates decisions taken in his career, 35 are considered today to have been right on target. Only two of the four charges raised against him are really worth discussing . . . the charge that his actions at the Fed have helped to inflate the dot-com bubble in the late '90s and the housing bubble of today.

On these, Greenspan wins in his own defence.

Given the state of investor psychology, he says in his book, he could have averted the stock market and housing bubbles of the late 1990s and the early 2000s.

However, predictably, this Pyrrhic victory would have required sinking the US into two almost consecutive recessions. A sad part of the story lies with the fact that while Alan Greenspan was keen on keeping the US economy afloat, the US policymakers were even more keen on burning taxpayers' cash.

And, given this week's change in the US interest rates, this is precisely the lesson that Greenspan's successor, Ben Bernanke has learned well. Let's hope the ECB's Mr Trichett reads The Age of Turbulence

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Dr Constantin Gurdgiev is an economist and editor of Business & Finance magazine