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Banned
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Is Alan Greenspan's Legacy the Destruction of Fiat Currency and Worldwide Depression?
Since it's inception in 1913, the Federal Reserve has presided over the devaluation of the dollar by 97 percent. Some view Alan Greenspan as a positive influence in managing the U.S. economy and the purchasing power of U.S. paper currency. Is this really an accurate conclusion of how his legacy as Fed Chairman will be regarded in the future.
IMO, Greenspan chose, at every turn, to sacrifice the longer term soundness of the dollar, in favor of short term expediency; economic stimulation of the American economy, at any cost. In so doing, my research shows that he has contradicted much of what he knew, as an economist, and has accelerated the collapse of the U.S. dollar, and put the U.S. on a path to no return.
Greenspan is reduced to the ridiculous quote at the bottom of this post, and all we can do is ask, "are we there yet", and buy silver, the best protection of future personal, economic security, "on the dips".
Quote:
http://www.house.gov/paul/tst/tst2005/tst022105.htm
The Maestro Changes his Tune
February 21, 2005
Nearly 40 years ago, Federal Reserve chair Alan Greenspan wrote persuasively in favor of a gold monetary standard in an essay entitled Gold and Economic Freedom. In that essay he neatly summarized the fundamental problem with fiat currency in a few short sentences: “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… In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value… Deficit spending is simply a scheme for the ‘hidden’ 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.”
Today, however, Mr. Greenspan has become one of those central planners he once denounced, and his views on fiat currency have changed accordingly. As the ultimate insider, he cannot or will not challenge the status quo, no matter what the consequences to the American economy. To renounce the fiat system now would mean renouncing the Fed itself, and his entire public career with it. The only question is whether history will properly reflect the destructive nature of Mr. Greenspan’s tenure.
I had an opportunity to ask him about his change of heart when he appeared before the House Financial Services committee last week. Although Mr. Greenspan is a master of evasion, he was surprisingly forthright in his responses to me. In short, he claimed he was wrong about his predictions of calamity for the fiat U.S. dollar, that the Federal Reserve does a good job of essentially mimicking a gold standard, and that inflation is well under control. He even made the preposterous assertion that the Fed does not facilitate government expansion and deficit spending. In other words, he utterly repudiated the arguments he made 40 years ago. Yet this begs the question: If he was so wrong in the past, why should we listen to him now?
First, the Federal Reserve does not mimic a gold standard by any measure. The clearest example of this lies in our current account deficit, which our fiat currency encourages. Under a gold standard we would not have exchange rate distortions between the Chinese renminbi and the U.S. dollar, for example. True currency stability is impossible when fiat dollars can be produced at will and foreign lenders bankroll our deficits.
Second, inflation is a much greater problem than the federal government admits. Health care, housing, and energy are three areas where costs have risen dramatically. The producer price index is rising at the fastest rate in seven years. Bond prices are rising. To suggest that rapid expansion of the money supply and artificially low interest rates do not ultimately cause price inflation is absurd.
Third, Fed policies do indeed have adverse political ramifications. Fiat currency and big government go hand-in-hand. Without a gold standard, Congress is free to spend recklessly and fall back on monetary expansion to pay the bills. Politically, it’s easier to print new dollars than raise taxes or borrow overseas. The Fed in essence creates paper reserves that enable Congress to undertake spending measures that far exceed tax revenues. The ill effects of this process are not felt by the politicians, who can always find popular support for new spending. Average Americans suffer, however, when their dollars are “confiscated through inflation,” as Mr. Greenspan termed it.
It’s not enough to question the wisdom of Mr. Greenspan. Americans should question why we have a central bank at all, and whose interests it serves. The laws of supply and demand work better than any central banker to determine both the correct supply of money in the economy and the interest rate at which capital is available- without the political favoritism and secrecy that characterize central banks. Americans should not tolerate the manipulation of our economy and the inflation of our currency by an unaccountable institution.
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Quote:
http://www.merkfund.com/merk-perspec...005-06-01.html
Home > The Merk Perspective > Merk Insights > June 1st 2005
The Fed opts for growth, ignoring imbalances and inflation
Axel Merk, June 1st 2005
Dallas Federal Reserve Bank President Richard Fisher, using a baseball analogy, said the Fed is in its 8th inning, and will raise rates one more time at its next meeting. A standard baseball game has 9 innings. Then, the Fed may or may not raise rates further, “go into overtime.” Fisher implies that the Fed is pretty much done raising rates. Fisher is new to his post and may have talked more broadly than he was supposed to; however, his statement was rehearsed, and the markets take it seriously.
We have long argued that the U.S. economy is too leveraged to allow the Fed to aggressively raise rates to curb the housing bubble and inflation that is creeping through the supply chain. Any forceful action would cause the housing bubble to collapse and throw the economy into a severe recession. For now, it looks like the Fed opts for continued growth rather than correcting imbalances. Inflation that has been creeping up will be fostered and entrenched in more and more sectors of the economy.
In the meantime, the yield curve is flattening. On the one hand, we have a slowing economy; on the other hand, we have an accommodating monetary policy that has contributed to numerous capital misallocations (“bubbles” in modern parlance). As long as the Fed is artificially boosting the economy, we are setting ourselves up for an ever more severe adjustment process when it does happen. Richard Russell dug up the following quote from Alan Greenspan – from 1966:
<b>"The excess credit which the Fed pumped into the economy spilled over into the stock market -- triggering a fantastic speculative boom. Belatedly, the Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929, the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and consequent demoralizing of business confidence." Alan Greenspan, The Objectivist, 1966</b>
One thing that certainly has not changed is the Fed’s confidence to steer this economy. Market forces will prevail in the end – the question is only which valve will have to give. When the Fed manages the entire yield curve, it may well be the dollar that has to give sooner or later. For now, the dollar enjoys short-term relief.
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Quote:
http://www.merkfund.com/merk-perspec...005-05-26.html
The Merk Perspective > Merk Insights > May 26th 2005
U.S. Current Account Deficit may hit $900 billion next year
Axel Merk, May 26th 2005
The Organization for Economic Cooperation and Development (OECD) is warning that the U.S. current account deficit will hit $900 billion or 6.7 percent of U.S. gross domestic product in 2006. These very large numbers are caused by a continued reinforcement of global imbalances: on the one hand, a very low U.S. savings rate, high U.S. consumption fostered by very low interest rates, and cheap Asian goods flooding the U.S. market (cheap because Asia subsidizes their exports through low exchange rates). On the other hand, we have lackluster demand in Europe and some Asian countries, notably Japan. OECD chief economist Jean-Philippe Cotis told the Financial Times: "We are not saying there will be a doomsday tomorrow morning ... but because the adjustments [to global imbalances] are relatively slow, we are running the risk that an accident will happen. [..] Time is running out - the numbers are getting big, big, big."
As pressure has mounted on China to revalue their currency, China has instead opted to impose export tariffs on select textiles and other goods. For China, this path of appeasing Western complaints about dumping their markets has the advantage that they do not have to devalue their massive currency reserves, that the Chinese government increases tax revenue, and that they can micro-manage their economy. Whether this is enough to counter the momentum of blaming China for all that is wrong with the global imbalances remains to be seen. As we have mentioned before, while China is yielding in the textile battle, China is winning the high-tech war: China recently introduced legislation to require foreign companies supplying high technology products to the government to have China based research and development.
Europe will not suddenly switch to a supply-side stimulus. The most notable event recently in Europe was Germany's calling of early elections in the fall. No matter who wins this election, this is a welcome boost to the European reform agenda: Schroeder's government had become a lame duck government, and all major political parties agree that reforms must take place. A new election will give a fresh mandate; we expect that this will accelerate reforms in Germany.
This weekend, the French are voting on whether to accept the new EU constitution. While a French no-vote would be a major disappointment for EU politicians, it would not be the end of the European Union. It would be a stark reminder to European politicians that politics must involve communication with its citizens. Europe has implemented many reforms with its current structure, and while a passing of the constitution is with no doubt helpful, Europe will have to find its way no matter what. Given that numerous governments in Europe are in politically weak positions, allowing for a fresh set of politicians to look at the constitution may cause a significant delay; opponents to the new EU constitution argue that such a delay is not the end of the world.
In the U.S., Greenspan now openly uses the "bubble" word when referring to the U.S. housing market. This late admission is in line with his sluggish reaction to the "irrational exuberance" he had noted in the stock market a few years ago. The U.S. economy is too leveraged to allow the Fed to forcefully act against. However, any delays will make the adjustment process only more severe. The housing bubble is a direct result of the highly accommodating monetary policy.
I was invited to comment on CNBC last week on the Treasury Department's currency report. While the U.S. blames China for subsidizing their currency, we tend to forget that U.S. subsidizes its own economy with their own set of tools. Fostering a low U.S. savings rate and excessive consumption is as much a factor to the global imbalances as a currency peg by China. Now, as we are approaching a $900 billion dollar current account deficit, we believe that it becomes increasingly likely that the markets will force an adjustment in the global imbalances.
Such an adjustment may include a global flight out of the dollar, higher interest rates and a collapse in U.S. housing prices.
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Quote:
http://www.kitco.com/ind/Daughty/jun082005.html
.............On the web site FromTheWilderness.com we read "It is easy to cast Dr Greenspan as the befuddled 'Mr. Magoo' leading America to economic and financial ruin. However, such a denigration of this man's abilities is entirely misleading and dangerously erroneous. The Fed has some of the finest financial and economic brains on the planet." Personally, I say "Huh?" Alan Greenspan and the other Federal Reserve knot heads are not brilliant. They are merely clever, in that they managed to prove something that is not true, exactly as Aristotle, Ptolemy and many brilliant others all "proved" that the earth is the center of the universe, and that the earth is flat. And let's not forget all the brilliant doctors, who determined the exact number of leeches that it takes to cure a fever. And how about those guys who determined the exact number of angels that can dance on the head of a pin? They were all clever, but none of them were brilliant.
If Alan Greenspan and the rest of those Federal Reserve morons WERE brilliant, they would have immediately seen that the whole Keynesian, econometric idiocy that they so ruthlessly champion is a real piece of ugly stupidity, and that Mises and that whole Austrian crowd are exactly right. As proof, the Austrians have proved, time and time again, that Keynes was wrong, and yet, the idiot Keynesians have never disproved a single idea of the Austrian Business Cycle Theory, which brings into question whether they are even clever or not! And beyond that, the economy is proceeding along exactly as Mises and the Austrian-school economists have confidently predicted, whereas the Federal Reserve has been so wrong, for so long, that they have had to resort to constant, drastic, over-the-top measures! Can it be any plainer than that? Sheesh!
But as long as people are taking on debt, the question becomes "How much debt can an economy take on?" The answer is usually something glib, maybe something on the order of "Obviously not forever, there is a limit how far into debt you can get." But is this actually true? Perhaps there IS no limit to how much debt can be shouldered! And so when the economy is faltering, a central bank can just create money and credit like it is gushing out of a fire hose! The crowd cheers! And thus the brave Federal Reserve struts around, preening like they are hotshot heroes, courageously extinguishing the destructive fires of stagnations, and deflations, and recessions, and depressions, and all the other unimaginable suffering that always accompanies the collapse of an economy, which collapses because too much freaking money and too much freaking credit were created during a previous boom. Can it always, always, always pull this amazing trick off?
My standard answer is, "Hahahahaha!" If it could happen, then everybody would have always been doing it. And when they did try this silly crap, it always ended in disaster, and THAT is why intelligent countries do NOT try it, and actually take steps to make sure that nobody tries it. Until now. Until Alan Greenspan..........
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Quote:
http://www.alwayson-network.com/comm...=P9646_0_4_0_C
Debtor Nations Dream of Deflation
Think this bubble is big? Wait until you see the next one. Part One of three.
ericjanszen [Trident Capital] | POSTED: 04.06.05 @01:21
<h5>"We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."
—Alan Greenspan, appearing before the Senate Banking Committee on Feb. 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.</h5>
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Last edited by host; 06-09-2005 at 02:32 AM..
Reason: Fixed spelling error in thread title.......
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