Tag Archives: Alan Greenspan

Alan Greenspan, Sellout, by David Gordon

Alan Greenspan offered his belief in and advocacy for free markets and laissez-faire in exchange for power, fame, and fortune, and the devil came through. From David Gordon at lewrockwell.com:

Sebastian Mallaby is the Paul A. Volcker Senior Fellow for International Economic Relations at the Council on Foreign Relations. One can be sure, then, that his new comprehensive book, The Man Who Knew: The Life and Times of Alan Greenspan, reflects an Establishment point of view. As if this were not enough to tell us where the book is coming from, Mallaby informs us that he had Greenspan’s full cooperation in writing it. “This book is based on almost unlimited access to Alan Greenspan, his papers, and his colleagues and friends, all of whom were generous in their collaboration.

Though the book is hardly a panegyric to Greenspan, Mallaby views his subject with considerable favor. Nevertheless, the book contains ample material for a more severe verdict: Greenspan abandoned the free market convictions he effectively defended early in his career as an economist. To uphold economic truth was not the path to the power and influence Greenspan sought; and he readily adjusted his beliefs to fit with his ambitions.

Greenspan attached himself to Ayn Rand’s inner band of disciples; but his adherence to free-market economics did not stem from his alliance with Objectivism. Greenspan learned economic theory from Arthur Burns at Columbia University. For Greenspan, like his mentor Burns, statistics had primary importance: economic theory emerged from discerning patterns in the data and was strictly subordinate to its empirical sources. “Burns was the chief heir to Wesley Mitchell’s empiricist tradition, and his influence restrained any enthusiasm that Greenspan might have felt for the new trends that had begun to stir in economics. … Even the cleverest econometric calculation was limited because yesterday’s statistical relationships might break down tomorrow; by contrast, finer measures of what the economy is doing are more than just estimates — they are facts.”

To continue reading: Alan Greenspan, Sellout

Alan Greenspan: Ron Paul Was Right About The Gold Standard, by Tyler Durden

Former Ayn Rand acolyte and gold standard proponent Alan Greenspan is a mess of contradictions. From Tyler Durden at zerohedge.com:

As John Rubino eloquently puts it, “when the history of these times is written, former Fed Chair Alan Greenspan will be one of the major villains, but also one of the greatest mysteries. This is so because he has, in effect, been three different people.” Greenspan started his public life brilliantly, as a libertarian thinker who said some compelling and accurate things about gold and its role in the world. An example from 1966: “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

Yet everything changed a few decades later when Greenspan was put in charge of the Federal Reserve in the late 1980s, instead of applying the above wisdom, for example by limiting the bank’s interference in the private sector and letting market forces determine winners and losers, he did a full 180, intervening in every crisis, creating new currency with abandon, and generally behaving like his old ideological enemies, the Keynesians. Predictably, debt soared during his long tenure.

Along the way he was also instrumental in preventing regulation of credit default swaps and other derivatives that nearly blew up the system in 2008. His view of those instruments:

The reason that growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risks. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it. This unbundling improves the ability of the market to engender a set of product and asset prices far more calibrated to the value preferences of consumers than was possible before derivative markets were developed. The product and asset price signals enable entrepreneurs to finely allocate real capital facilities to produce those goods and services most valued by consumers, a process that has undoubtedly improved national productivity growth and standards of living.

To continue reading: Alan Greenspan: Ron Paul Was Right About The Gold Standard

Alan “Bubbles” Greenspan Returns to Gold, by Bill Bonner

Bill Bonner gets two posts on SLL in one night. This one is on the seduction and corruption of Alan Greenspan. From Bonner at wolfstreet.com:

After a misbegotten credit bubble and $60 trillion more of debt.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.

— Alan Greenspan, 1966

That old rascal!

Before joining the feds, former Fed chief Alan “Bubbles” Greenspan was a strong proponent of gold and the gold standard. He wrote clearly and forcefully about how it was necessary to restrain the Deep State and protect individual freedom. Then he went to Washington and faced a fork in the tongue.

In one direction, lay honesty and integrity. In the other, lay power and glory.

Faking It

Under the Bretton Woods monetary system, the U.S. promised foreign central banks that it would convert their dollars to gold at a fixed price of $35 an ounce. This constrained the amount of dollars the U.S. could print to the amount of gold it had in its reserves.

A smart man, Greenspan quickly realized he could not advocate for this old, tried-and-true gold standard and run the Deep State’s new credit money system. In 1987, he made his choice. He took over the top job at the Fed and faked it for the next 19 years.

Since 1978, we have had four different Fed chiefs. Some were smart. Some were honest. Only Paul Volcker was smart and honest.

Bernanke was honest… we believe. As near as we can tell, so is Janet Yellen. Both may mean well, but both are careful not to think out of the Deep State box.

Alan Greenspan was smart. But he is a scalawag. He knew all along that the system was corrupt and self-serving. He had explained it in essays he’d written prior to joining the Fed.

But he also knew he would never get his picture on the cover of TIME magazine if he told the truth.

(In 1999, Greenspan eventually got his mug on the cover. The magazine pictured him alongside then Treasury secretary Robert Rubin and his deputy, Larry Summers, under the headline “The Committee to Save the World” for their handling of the Asian financial crisis.)

It was power Greenspan wanted; he knew he would have to play the Deep State’s game to get it.

To continue reading: Alan “Bubbles” Greenspan Returns to Gold

Who Is Left To Speak The Truth (Or Why Government Hates Gold), by Bill Bonner

From Bill Bonner at Bonner & Partners via theburningplatform.com:

Mr. Market Gets Even

Yes, prices are being discovered again… by free declaration of buyers and sellers.

Owners of Greek stocks are discovering that their equity stakes aren’t as valuable as they believed.

But for every seller there is a buyer…

Sellers are losing money. Buyers believe they are getting a bargain.

You can fool all of the people some of the time. Some of the people all of the time. And most of the people once in a while.

You can obstruct price discovery and you can disguise and distort the real value of things. But Mr. Market will get even someday. He always does.

Yesterday, we mentioned but did not explain, that Alan Greenspan betrayed Mr. Market…

In 1987, after President Reagan appointed him Paul Volker’s successor as chairman of the Federal Reserve, Greenspan went over to the zombies… or more precisely, to their allies, the cronies.

It must not have been easy for the former free market defender and member of Ayn Rand’s inner circle…

The Largest Paper Money Racket Ever

In the late 1980s and early 1990s – you could almost see Greenspan struggling with the contradictions.

He had been loyal to free markets. But his job carried with it the biggest central planning authority of all time. He knew that currency unbacked by gold was a scam, but his position as chief of the Fed put him in charge of the largest paper money racket ever.

Greenspan believed in letting Mr. Market set prices. But as gatekeeper of U.S. credit, he corrupted more prices than any human being ever had before him.

But what was he to do?

In 1993, at her husband’s inaugural address to Congress, Ms. Clinton – now the leading Democratic candidate for president – chose to stand next to him. It was one of those magic moments in history, when power and money came together to celebrate.

(When we were in Vancouver, we went to an Anglican church. A banner hung down from the ceiling proudly proclaiming the trinity: “King, Country, God.” The parishioners like to imagine that all their leaders are united… It spares them the trouble of choosing just one.)

Of all the bigwigs in Washington, it was Alan Greenspan who had the biggest wig of all. He was practically a god to the members of Congress, to whom the economy was as big a mystery as Heaven itself.

To continue reading: Who Is Left to Speak The Truth?

The Warren Buffet Economy——Why Its Days Are Numbered (Part 1), by David Stockman

From David Stockman, at davidstockmanscontracorner.com:

During the 27 years after Alan Greenspan became Fed chairman in August 1987, the balance sheet of the Fed exploded from $200 billion to $4.5 trillion. Call it 23X.

Let’s see what else happened over that 27 year span. Well, according to Forbes, Warren Buffet’s net worth was $2.1 billion back in 1987 and it is now $73 billion. Call that 35X.

During those same years, the value of non-financial corporate equities rose from $2.6 trillion to $36.6 trillion. That’s on the hefty side, too—- about 14X.

When we move to the underlying economy that purportedly gave rise to these fabulous gains, the X-factor is not so generous. As shown above, nominal GDP rose from $5.0 trillion to $17.7 trillion during the same 27-year period. But that was only 3.5X

Next we have wage and salary compensation, which rose from $2.5 trillion to $7.5 trillion over the period. Make that 3.0X.

Then comes the median nominal income of US households. That measurement increased from $26K to $54K over the period. Call it 2.0X.

Digging deeper, we have the sum of aggregate labor hours supplied to the nonfarm economy. That metric of real work by real people rose from 185 billion to 235 billion during those same 27 years. Call it 1.27X.

Further down the Greenspan era rabbit hole, we have the average weekly wage of full-time workers in inflation adjusted dollars. That was $330 per week in 1987 and is currently $340 (1982=100). Call that 1.03X

Finally, we have real median family income. Call it a round trip to nowhere over nearly three decades!

OK, its not entirely fair to compare Warren Buffet’s 35.0X to the median household’s 0.0X. There is some “inflation” in the Oracle’s wealth tabulation, as reflected in the GDP deflator’s rise from 60 to 108 (2009 =100) during the period. So in today’s dollars, Buffet started with $3.8 billion in 1987. Call his inflation-adjusted gain 19X then, and be done with it.

And you can make the same adjustment to the market value of total non-financial equity. In 2014 dollars, today’s aggregate value of $36.7 trillion compares to $4.5 trillion back in 1987. Call it 8.0X.

Here’s the thing. Warren Buffet ain’t no 19X genius nor are investors as a whole 8X versions of the same. The real truth is that Alan Greenspan and his successors turned a whole generation of gamblers into the greatest lottery winners in recorded history.


To continue reading: The Warren Buffet Economy

He Said That? 1/26/15

From Anatoly Kucherena, Edwin Snowden’s lawyer:

Edward never uses an iPhone, he’s got a simple phone. The iPhone has special software that can activate itself without the owner having to press a button and gather information about him, that’s why on security grounds he refused to have this phone.


For anybody who has been paying attention, the relationships between Big Government, Big Intelligence, Big Military, and Big Tech are not news. Apple recently introduced an encryption feature on its latest iPhone that the government can supposedly not break, but according to Mr. Snowden, and there is little reason to doubt his expertise, iPhones still allow the government to track you. When the US finally descends into a totalitarian police state, there will be a special spot in hell for the tech company executives who enabled the government to play electronic Big Brother.

A Mania of Manias, by Robert Gore

On December 5, 1996, Chairman of the Federal Reserve Board Alan Greenspan asked: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” Greenspan was worried about the stock market, particularly the booming tech sector, but for the next three years they just got more exuberant and more irrational.

The subsequent crash took 38 percent off the DJIA and 77 percent off the tech-heavy NASDAQ in a couple of years. Speculators who were short the tech stocks and indexes made buy-an-island profits, but most of them had already been carried out on stretchers. The NASDAQ had gone from 1492.4 in 1998 to 5048.62 at its 2000 high, a gain of 238 percent. Up to the crash, speculators justifiably said, “This is insanity,” bet accordingly, and lost their shirts. The NASDAQ bottomed in 2002 at 1139.9, below where it had begun its final lift-off in 1998. Greenspan had been derided for his “irrational exuberance” speech for three years, but by 2002 he was hailed as a seer.

Greenspan’s speech incorporated no extraordinary analytical insight, merely recognition that in a finite world, off-the-chart returns can’t last forever, or as the old traders’ adage puts it: trees don’t grow to the sky. The paradox of Greenspan is that he made such a public utterance about a financial condition that he bore responsibility for perpetuating. He has never acknowledged what became known as the “Greenspan put,” first instituted in response to the stock market crash of 1987. Every significant financial perturbation was met with more and cheaper money, and the Greenspan Fed even launched a preemptive strike against a threat that never materialized. (Anybody remember the Y2K disaster?) That pre-millennium largess sparked the equity indexes’ final spasmodic rapture before the tech wreck.

Greenspan’s flood of money after that wreck launched the great housing bubble, and again those who muttered, “This is insanity,” and bet accordingly lost their shirts—until they didn’t. The tech bubble had been fed by dreams of technologies most of the dreamers didn’t understand, a belief in magic and a “new economy”. There’s nothing magic about a house. It’s a wasting asset, and for most of U.S. history it has been regarded as a place to live, not as an ATM, investment, or retirement nest egg. And certainly not as a speculative asset, bought on leverage, held for a short time, and flipped for a profit.

So there was not even a belief in technological magic to “excuse” the housing bubble, just a lot of people on TV, in academia, on Wall Street, and in the government, proclaiming that house prices never go down (they did in the Great Depression), so buy one, or several, or many, before prices went up next month. But for the easy, cheap money spewed by the Greenspan and Bernanke Feds, the housing bubble would never have happened. When it burst the DJIA lost 54 percent from its 2007 peak to its 2009 low. Many of the derivatives created on the financial back end were worthless. Some of the shorts found themselves on the Forbes 400, but not before they had suffered substantial losses. It’s tough to time a bursting bubble.

Which brings us to the present day. If the tech mania was based on magic, and the housing mania was based on a supposed fact that was historically untrue, today’s mania is a mania of manias, interlinked and resting on premises that are patently illogical, contradicted by both the historical record and current experience. Those premises are: central planning works, government debt promotes prosperity, and economic growth stems from central banks buying that debt with money they create from thin air. On these premises rest manias in governments, their debts, and central banking.

If central planning worked, there would still be a USSR and China would not have tossed Mao’s brand of communism into the dustbin of history. These historical bastions of non-prosperity had to resort to “demand management.” When their economies were unable to provide the basic necessities of life, their enlightened rulers slaughtered millions. The US imported central planning with the Great Depression, but it worked no better here than it had for Stalin. Since then, government failures have been legion while the Information Revolution has transformed the economy, but the belief in central planning—and hostility towards markets and the profit motive—is unshakeable. Millions supported Obamacare, a big step towards centrally planned and provided medicine, probably after reading about it on their iphones.

The term “developed country” now refers to those countries whose governments have developed mountains of debt and future commitments they have no hope of repaying. The valleys are demographic; most of those nations have birth rates that aren’t replacing the current aging populations, and fall far short of providing a sufficient workforce to fund the old folks’ benefits. Japan has the dubious honor of having one of the highest mountains—its government’s debt is over 240 percent of its GDP, and one of the deepest valleys. Its birthrate is among the world’s lowest, and it stringently restricts immigration.

Most government debt doesn’t go towards projects that will produce an economic return; it funds consumption. The belief (hope?) persists that such consumption somehow leads to economic growth, although a weak “recovery” in the face of the greatest global governmental debt binge in history offers no support. Germany, which has incurred relatively little debt since the financial crisis, has had one of the world’s best-performing economies, while Japan, which has buried itself in IOUs, just reentered recession.

The debt binge hasn’t worked out as planned, but the quack economic central planners have more snake oil: central bank monetization of that debt to suppress interest rates. The Japanese central bank has monetized its government’s debt at low rates for years. It is currently buying 100 percent of the government’s issuance, and the yield on its ten-year bond dropped to .31 percent, but Japan has endured serial recessions. If central bank balance sheet expansion and low interest rates were the road to riches, why not monetize everything and create universal wealth? The absurdity of that proposition is self-evident, but equity markets the world over rally every time a central banker hints of more balance sheet expansion and continuing microscopic interest rates (see “Ms. Yellen Whispers Sweet Nothings in Mr. Market’s Ear,” SLL, 12/19/14)

Tulips, the South Sea Bubble, the new economy, the housing bubble—at some point the greatest fool has bought into an absurdity and a market that could only go one way goes the other way, precipitously. If the tech wreck was a jump off a thirty-meter platform and the 2008 financial crisis a plunge off the cliffs of Acapulco, the end of this multiple-absurdity mania of manias will be a swan dive from the top of the Empire State Building into a two-foot wading pool.

Seismic economic and financial upheaval will shake political foundations around the world. What will governments and central banks do? They are already buried in debt, and interest rates are at zero or below. Yet their constituents have bought into the absurdities of their supposed omniscience and omnipotence. They will, like spoiled children, demand immediate solutions to decades-in-the-making problems caused by central planning, and its attendant debt promotion and central bank machinations.

Of course, the same prediction could have been made at the end of 2013, 2012, 2011, 2010, and 2009 (and SLL made it at the end of some of those years), and it may be a just a prediction, not a reality, at the end of 2015. A good mechanic can listen to an engine’s rattle and correctly predict the car will break down, but not necessarily say whether it will be 50 or 500 miles down the road. Who knows when the jerry-rigged contraption known as the global economy will fall apart? It’s belching blue smoke. The oil market serves as a reminder that not all assets can be monetized and not all prices “administered” by the central planners. It may also be the dashboard red light that goes on just before the engine gives its death rattle and the car stops (see “Oil Ushers in the Depression,” SLL, 12/1/14, and “Oil Economics, Part 2,” SLL, 12/3/14).. This time, however, there will be no deficit-financing or central-bank-monetization AAA tow truck a cellphone call away to come rescue it.