Greenspan : Godzilla or God ?

http://www.moraldefense.com/Commenta...he_Markets.htm The Real Danger to the Economy is Not “Irrational Exuberance” But Greenspan’s Irrational Pessimism By Richard M. Salsman Senior Policy Analyst The Center for the Moral Defense of Capitalism When Federal Reserve\ chairman Alan Greenspan speaks, markets listen. But Mr. Greenspan doesn't create wealth, as E.F. Hutton did when he spoke. Mr. Greenspan's speeches tend to destroy wealth. Last week, for example, Greenspan told Congress that he'll keep raising interest rates. In response, the stock market plunged nearly 3%—meaning that about $400 billion of wealth was destroyed. We have only Greenspan to blame for the drop, because there's nothing wrong with the American economy. Growth is strong, corporate earnings are up, inflation is down, job creation is robust. Rising stock prices reflect this good news—and the chance it'll persist. The market is an efficient mechanism for valuing companies. But the Fed presumes otherwise. It believes the market is a "bubble" and that rate hikes are needed to burst it. In fact, these rate hikes will only boost inflation, depress earnings, and lower the value of companies. Invariably, that's what has happened before. This isn't the first time Greenspan has destroyed investors' wealth. The stock market usually plunges when he speaks. He made similar remarks and raised rates dramatically in the months before the October 1987 crash of 30%, when nearly $3 trillion of wealth was destroyed. In December 1996 he said the market's rise was due to "irrational exuberance." Stocks fell 10% in the following weeks—a destruction of $1.3 trillion in wealth. Since June of 1999 he has raised interest rates by one percentage point. The market is lower today than it was then, resulting in billions in foregone wealth creation. The real problem in these cases was not inherent to the private economy. The problem was Greenspan's view that prosperity is inherently "unsustainable." Greenspan believes prosperity sows the seeds of its demise. He insists that economic growth breeds inflation. But this view defies both logic and history. Historically, this country’s fastest growth rates occurred precisely when inflation was lowest. For example, America in the 19th century saw the stupendous rise in output known as the Industrial Revolution. Yet the inflation rate for most of the century was virtually zero. In recent decades, that performance has been repeated, on a smaller scale, by a computer-based technological revolution that has been characterized by relatively low inflation. In contrast, the 1970s saw frequent dollar devaluations and skyrocketing inflation—with the result of rising interest rates, economic stagnation, deep recessions, and double-digit unemployment. The historical evidence is clear: growth and inflation do not go together. In fact, they are irreconcilable opposites. Logically, this should be expected. When money has stable purchasing power, businesses can plan more effectively and thus grow more quickly. Prosperity is a result of low inflation, not a danger to it. And the higher wages made possible by growing productivity do not undermine the purchasing power of money. Inflation only occurs when the government prints paper money that is not backed by increased production. But Greenspan’s theory shifts the blame for inflation from the government to the private sector. He blames inflation on “too much” production rather than too much paper money. Then, by raising interest rates and encouraging economic contraction, Greenspan proceeds to punish the businessmen for the sins of the bureaucrats. Greenspan has a reputation as pro-free-market economist, and many pundits credit him for the economic and financial gains of the 1990s. But this reputation is undeserved. The Federal Reserve is a form of socialist central planning applied to money and banking, and socialism has been a wealth destroyer wherever and whenever it’s been practiced. Not surprisingly, the Fed has never delivered on its supposed job of providing sound money—not even under Greenspan. The dollar has lost 95% of its purchasing power since the Fed was formed in 1913—and 47% of its value since Greenspan became Chairman in 1987. By contrast, in the 19th Century—a gold-standard era with no Federal Reserve -a dollar bought as much at the finish of the century as at the start. Both inflation and interest rates today are far higher than under gold-based money: the last time the US had a gold-based dollar, a 30-year mortgage cost 4%--today it costs 8.5%. Is this the “achievement” for which Greenspan deserves credit? To the extent we're prosperous today, it's despite Greenspan’s speeches and policies—as the market turmoil that follows his pronouncements reflects. Were Mr. Greenspan still a private sector economist, his false musings would fall harmlessly on deaf ears. But when he speaks as the Fed's head, markets are forced to listen—and react accordingly. ... Just Say No to Federal Reserve Voodoo Economics! ;0) [Edited by renots on 09-14-2000 at 02:48 AM] __________________ Volker and Greenspan ROCK. In fact, I think I'll change my screen name to GRNSPNLVR __________________ wonders what renots is going to post. ;0) __________________ I agree that Volker set the table for the 90's prosperity, and is not generally given credit for it. Greenspan's "pessimistic" approach is an effort to stay away from what Volker fixed. I'll write more later. __________________ OK . . . just gotta throw in my two cents and say that the 2 posts Renot has put up concerning the Fed are complete and total phooey! hehe . . . The articles were clearly written by people who have little to no grasp of macroeconomics precepts nor financial markets. PENNY - Not sure I can agree with you about Volker. In my view, he was a bit too aggressive in his goal of killing inflation. And his overzealousness led to a deeper and longer recession than was necessary. (But I suppose you could say that by killing inflation he set the stage . . . but he could have done it more effectively probably) Also, I'd hardly say Greenspan has a "pessimistic" approach . . . ya gotta remember that he was the one who cut rates too! Now he's just being safe - delicate balancing act. Oh well . . . blah . . . hehe __________________ quote: Originally posted by Butch: OK . . . just gotta throw in my two cents and say that the 2 posts Renot has put up concerning the Fed are complete and total phooey! hehe . . . The articles were clearly written by people who have little to no grasp of macroeconomics precepts nor financial markets. BUTCH - Last i checked, you knew jack s#it about finance too. If i remember correctly, I soundly whooper yer ass in a financial decision making class, so its clear you don't know as much as you think!! BTW, when are you coming out again? Sept. 25th, or Aug. 25? __________________ What I don't understand is if the purpose of Greenspan's rate increases are to reign in exuberent markets why doesn't he just raise the margin requirement for stocks from 50% to something higher? Instead he increases everyone's rate of indebtedness, making it harder to do things such as buying houses, paying for school, and paying off minimums on credit cards. Meanwhile all that extra interest goes to pay the Rockefellers and their NWO cronies. Not good.[I have little doubt that Gunther K. Russbacher from Rumormillnews is still employed by the CIA to spread FUD; doesn't mean he's not going to let some real facts reveal themselves in the process] Can anyone address my point that that information based economies can grow faster than 3% a year without inflation? Let's not forget that Greenspan's policies have generally led to Trickle-Up economic policies that have concentrated the wealth upwards even more than it was 20 years ago. Anyone doubt this? I aint buying the bullsh!t any longer regardless of what the PTB (PowersThatBe) want me to think. Greenspan isn't making it easier for the common person by anymeans.[Eliminating Federal Income Tax on income below $100,000 would help too] Who knows maybe we could have 10 years of economic growth if someone would stop 'helping' so much. ;0) __________________ But for once, Butch, you are right. This article has no grasp of what Greenspan's job is; sounds more like a disgruntled day trader sitting working his E*trade account in his underwear. Greenspan is supposed to ensure the financial health of the nation. As a side note, can anyone tell me how in the hell rising interest rates boost inflation?! Back to our story, an overheating of the economy is just as dangerous as a burgeoning recession. It ratchets up wages beyond reasonable levels and truly causes inflation. There is such a thing as unsustainible inflation, an it is not pretty. Renots, in the future, please post things that make intellectual sense, not just anti-establishment intellectual-sounding whipping cream. ;O) __________________ Quote: Originally posted by pennypinch: As a side note, can anyone tell me how in the hell rising interest rates boost inflation?! Uh, higher interest rates raise the cost of borrowing money, thereby raising the cost of running a business artificially, inflating prices. The Fed's full of ****. They want to keep us brainwashed into thinking that keeping wealth from spreading to the masses is the most important thing. Their goal is to keep the ruling class ruling from what I can see. Comments please? :0) BTW My HM Aeron came today and it ROCKS! [Edited by renots on 09-14-2000 at 02:50 AM] __________________ Federal Income Tax ratchets up wages beyond reasonable levels and truly causes inflation. __________________ That is straight wacky. There is a negative relationship between interest rates and inflation. Why in the world would Volker raise interest rates to lower inflation? Your explanation has a basis in neither economic theory nor experience. And as far as I can tell, spreading wealth to the masses has occurred. Last I checked, the average family is doing much better now than in 1982. Buying power is up, employment is down. Am I missing something here? Most people in the "ruling class" certainly don't stash their money in their matresses. they have equity in the markets. Rising interest rates is bad for them too. BTW, I'm sitting in an Aeron too, and once you get all the little adjustments right, it's really great! __________________ Anyone think we need to get off our overdependence on OIL so we can prevent the inflation caused in the 70's by high energy prices? That was the true cause of inflation in the 1970's, not overexuberant markets. Of course a Federal Reserve still dominated by oil interests is not going to address this issue. Or do you still think the Federal Reserve is a non-elitist egalitarian institution? If so, can you point me to the stock ticker symbol for the Federal Reserve so I can buy some shares. What that? Not available on the open market? Now why would that be? :0) __________________ Quote: Originally posted by pennypinch: Last I checked, the average family is doing much better now than in 1982. Last I checked,the average family is in greater debt to Federal Reserve than in 1982. As far as inflation's relationship to interest rates we need to stop fighting the same Old wars over and over again. These relationships are not set in stone and Greenspan has not been granted some special insight in how to run the economy; he's just done a good job at keeping the people in power in power. :0) [Edited by renots on 01-27-2001 at 07:11 PM] __________________ By the way economists are iinfamous for getting caught with their pants down, so I suggest we all start thinking for ourselves and ignore whatever fashionable drivel happens to make its way out of ivory tower thinktanks. __________________ And where do you think our overly rosy opinions of Greenspan comes from? Mostly politicians and the media; we can trust them right? ;0) __________________ quote: Originally posted by pennypinch: BUTCH - Last i checked, you knew jack s#it about finance too. If i remember correctly, I soundly whooper yer ass in a financial decision making class, so its clear you don't know as much as you think!! BTW, when are you coming out again? Sept. 25th, or Aug. 25? [/b] PENNY . . . you barely beat us! AND if you'll remember, I was working with ONE partner who was a DETRIMENT to the team . . . So . . . basically, I did it all myself! Oh yeah, and what was yer grade in Security Valuation and Portfolio Theory? hehe. BTW, I'm gonna be out there 8/25-30. I'll call you and let ya know. __________________ Quote: Originally posted by pennypinch: And as far as I can tell, spreading wealth to the masses has occurred. And as far as I can tell, spreading Debt to the masses has occurred. [Edited by renots on 01-27-2001 at 07:12 PM] __________________ quote: Originally posted by renots: Anyone think we need to get off our overdependence on OIL so we can prevent the inflation caused in the 70's by high energy prices? That was the true cause of inflation in the 1970's, not overexuberant markets. Of course a Federal Reserve still dominated by oil interests is not going to address this issue. Or do you still think the Federal Reserve is a non-elitist egalitarian institution? If so, can you point me to the stock ticker symbol for the Federal Reserve so I can buy some shares. What that? Not available on the open market? Now why would that be? :0) Why the hell do you think? It's a government institution. If on the open market, hmm, what could ostensibly happen? I hope i don't have to spell it out __________________ Quote: Originally posted by pennypinch: It's a government institution. Ah penny, the Federal Reserve is a NON government institution; it's a private corporation (or trust, I forget the exact details) I thought you knew that being the financial guru you claim to be ;0) [Edited by renots on 01-27-2001 at 07:13 PM] __________________ quote: Originally posted by renots: As far as inflation's relationship to interest rates we need to stop fighting the same Old wars over and over again. These relationships are not set in stone. What happens when you think on your own is the previous post regarding interest rates/rising inflation, which makes almost no sense whatsoever. I suppose, as a corrolary to the above quote, that you would think a formal education as a waste of time and money? Look, "rising interest rates meaning inflation" fundamentally ignores the fact that one must be able to afford something to buy it. If the interest rate is taken as the price of money, then some companies will not be able to buy some items, thereby decreasing the demand for those items. I will assume you have SOME grasp of economic theory, enough to understand that a decreased demand means a lower price. That's thinking for myself, and some guy from NBC didn't have to tell me that. A certain level of unemployment will exist in any healthy economy. For it to stay healthy, certain painful maintainance must be done. __________________ quote: Originally posted by Butch: PENNY . . . you barely beat us! AND if you'll remember, I was working with ONE partner who was a DETRIMENT to the team . . . So . . . basically, I did it all myself! Oh yeah, and what was yer grade in Security Valuation and Portfolio Theory? hehe. BTW, I'm gonna be out there 8/25-30. I'll call you and let ya know. True, true, but remember, that I had peter! that guy was a total stone. and i think i beat you in SVPT... __________________ quote: Originally posted by renots: I thought you knew that being the financial guru you claim to be.[/b] Any claims i make are subject to my own review. Nevertheless, it's a semantic argument. The reason it's not on the open market is obvious. __________________ Quote: Originally posted by pennypinch: The reason it's not on the open market is obvious. Yes, some insanely rich people don't like to share :0) [Edited by renots on 01-27-2001 at 07:14 PM] __________________ quote: Originally posted by renots: Yes, some insanely rich people don't like to share And is that not their right? Furthermore, I suppose I WILL have to spell it out. If put on the open market, the country's monetary policy could be purchased. That doesn't seem like a really great idea to me. __________________ My point is why am I obligated to give money to these people if they don't want to play fair? __________________ In what manner are they not playing fair? In that they aren't subscribing to the pie-in-the-sky rhetoric you so espouse? Because they don't believe the monetary fundamentals you subscribe to? How not fair? And in what way are you giving money to them? I thought you were just pissed about your portfolio? __________________ Quote: Originally posted by pennypinch: If put on the open market, the country's monetary policy could be purchased. That doesn't seem like a really great idea to me. It already was purchased back in 1913 with the founding of the Fed and finalized in 1930 with the 'bankruptcy' of the U.S. No, it was not a really great idea for the vast majority of us. Monetary Policy should be NEUTRAL. It should not be there to benefit a selected few. If keeping the purchasing value of the Dollar (and the common people's store of wealth) constant over long periods of time has been the goal of the Fed it has FAILED DRAMATICALLY in it's 87 years of existance. Now if its goal has been to devalue the dollar, give everyone the perception of wealth while putting them in DEBT, and make sure wealth makes a unimpeded everupward journey to the top .04% of the world's population, its done a marvelous job. I honestly think we could have had a TRUE technological revolution 40 years ago if greedy regressive influences didn't have their way. Don't tell me you think every story of a brilliant inventor being harrased, jailed, or killed is a bunch of hogwash. There's been enough incidents (Nikola Tesla anyone?) in our 20th century for an open minded progressive mind to connect the dots. ;0) [Edited by renots on 09-14-2000 at 02:51 AM] __________________ Quote: Originally posted by pennypinch: And in what way are you giving money to them? Ah, let me count the ways: Income Tax, Capital Gains Tax, Mortgage Interest, Credit Card Interest, etc. If the Fed was a fair Institution its proceeds would go towards running a government without income tax. Consider this scenario from the 1980's: Invest in warmonging industries, encourage military buildup paid by taxpayers, use profits to buy Bonds, whose Interest is paid by the same taxpayers that paid you the first time around. Sound Fair? I guess it's fair when you've got an extra couple of millions of dollars to spare and have no moral qualms about what industries to invest in. Seems pretty EVIL to me, but that's just me. If you choose to not go to the dark side, you either lose out big time over the long run unless you own a house(or a mortgage to one), or don't see nearly as high a return without taking on significantly more risk. Eliminating Federal Income Tax below $100,000 would be Fair ;0) [Edited by renots on 09-14-2000 at 02:52 AM] __________________ Quote: Originally posted by pennypinch: I will assume you have SOME grasp of economic theory, enough to understand that a decreased demand means a lower price. Really, has decreased demand for Income Tax led to lower Income Tax? :0) [Edited by renots on 09-14-2000 at 02:53 AM] __________________ And Alan, if you're reading this, LOWER THE D#MN RATES ALREADY. Short of other factors, a rise in the expense of aquiring money to invest in ventures that are not profitable in the short term (ever hear of Francis Bacon and his Tree Farm idea?) is an inflation of cost of production, which yes, penny, is inflation, just not the wage-related inflation that everyone seems to think is the core cause of inflation. Maybe if the the economic texts that everyone takes as gospel were written in a clear and concise manner there wouldn't be so much misunderstanding on this key point, but then I guess then they wouldn't be fulfilling their primary purpose of FUD. ;0)