Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022
Quantum AI Tech Stocks Portfolio Current State - 4th Jan 2022
The Alibaba Stock Market - 4th Jan 2022
Will Gold & Silver Be Investment Outcasts in 2022 Again? - 4th Jan 2022
Stock Market Happy 2022 Entry - 4th Jan 2022
Complete paradigm shift will make Gold the generational trade - 4th Jan 2022
Corsair MP600 NVME2 1tb Drive Sudden DEATH Failures - Back Up NOW! - 4th Jan 2022
AI Tech Stocks Portfolio Updated Buying Levels and Zones Part 2 of 2 - 3rd Jan 2022
Stock Market Sentiment Speaks: 2022 Can Be Your Best Year Ever - 3rd Jan 2022
2020-22 - Soaring costs of the West's Pandemic failure - 3rd Jan 2022
AUTODESK (ADSK) - CAD - Metaverse Stock Analysis Investing for 2022 and Beyond - 2nd Jan 2022
Stock Market Sector Themes In Play For 2022 - 2nd Jan 2022
Excuse Me Mr Gold. What Year Is It? - 2nd Jan 2022
Stock Market Early 2022 Should Continue Melt-Up Trend In January / February - 2nd Jan 2022
UK Energy Crisis WARNING 2022 - How to Avoid Huge Increase in Gas and Electric Fuel Bills Right Now! - 1st Jan 2022
Why You Need A PR Expert For Your Financial Startup - 1st Jan 2022
TENCENT- Chinese High Risk GAMING Metaverse Stock Analysus for Investing 2022 and Beyond - 31st Dec 21
Gold Price Forecast 2022 - The Golden Year - 31st Dec 21
Will 2022 Be Better for Gold Than 2021? - 31st Dec 21
Gold Stocks – Wishing And Hoping (And Losing) - 31st Dec 21
Sheffield Christmas Market 2021 SANTAS GROTTO at Peace Gardens, City Centre Sights and Sounds - 31st Dec 21
Nvidia Leaves planet Earth - AI Tech Stocks Analysis - 30th Dec 21
Google (Alphabet) AI Tech Stocks Analysis - 30th Dec 21
Stock Market Santa Rally Challenge - 30th Dec 21
Sheffield Christmas Market Stalls, Sights and Sounds 2021 - 30th Dec 21
Investment Roadmap for 2022 - 30th Dec 21
2022 – The Year of (Gold) Inflation? - 30th Dec 21
Overvalued Stocks and Housing Perfect Storm for Gold - 30th Dec 21
My Most surprising Crypto call to date - 30th Dec 21
What is a Rehab Clinic and How It Is Beneficial for People? - 30th Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Criminal Legacy of Alan Greenspan

Politics / Central Banks Jun 15, 2010 - 05:41 AM GMT

By: LewRockwell

Politics

Best Financial Markets Analysis ArticleRyan McMaken writes: For those of us who were mere economics undergraduates in the 1990's, Alan Greenspan was rather like a god. Admittedly, the vision of Greenspan handed down to the undergrads by the faculty wasn't one of vulgar hero-worship. Greenspan's mumblings and evasions were, after all, treated with bemusement by the faculty. But, there was the feeling that Greenspan, for all his lack of clarity, seemed to understand things that the rest of humanity didn't understand, and there was indeed faith in the idea that he must possess almost supernatural powers in fine-tuning the economy to ensure economic prosperity indefinitely.


Later, some of us were cured of the Greenspan religion by Austrian economics, but for most, the image of Greenspan as The Maestro (to use the term popularized by Bob Woodward) continued right up until even the fall of 2008 when The Panic set in.

Greenspan's reputation has suffered since then, although many still pay him six-figures for 45 minutes of his wisdom. And, while Greenspan himself may be having trouble portraying himself as a mere innocent bystander in the current economic collapse, Greenspan's policies are alive and well in his successor. Ben Bernanke has shown that Greenspanism at the fed is in no danger of going away. Easy money in the form of subterranean interest rates, microscopic reserve requirements, and endless praise of debt was Greenspan's eternally favorite strategy, and Bernanke clearly plans to continue the binge indefinitely.

Frederick Sheehan's Panderer to Power documents Greenspan's rise to power, his skill at playing the political game, and his ability to convince virtually all the world that he was perhaps the greatest economist of the age. He accomplished all of this, Sheehan notes, in spite of a record as one of worst forecasters of economic trends at every stage of his career.

While there are many books about Greenspan, Panderer to Power is perhaps the only book (other than Fleckenstein’s Greenspan’s Bubbles) that looks in depth at Greenspan's work leading up to the 2008 financial panic and its aftermath. And as a result, the book has a completely different story arc from the other Greenspan books. While the pre-bust books feature a story of a meteoric rise of a brilliant economist ending in apotheosis, Panderer to Power is the story of an economist whose primary skill was self-promotion, and who in the end became increasingly divorced from economic reality. Even as early as April 2008 (before the bust was obvious to all), the L.A. Times, observing Greenspan's post-retirement speaking tour, noted that "the unseemly, globe-trotting, money-grabbing, legacy-spinning, responsibility-denying tour of Alan Greenspan continues, as relentless as a bad toothache."

Alan the God had become Alan the Mere Mortal.

Sheehan's overall thought on Federal Reserve Chairmen in general is that the good ones resist political pressure, and thus resist inflating the money supply to please the elected politicians. Receiving favorable treatment by Sheehan are the term of William McChesney Martin and the early years of Paul Volcker's term. Sheehan contrasts these Chairmen, who warned about inflation and clashed with Congress and the White House over the matter, against Greenspan who, always the political opportunist, consistently provided the politicians with what they wanted: easy money, inflation, and at least the appearance of a booming economy. The politicians also wanted an economist willing to always say that everything was going to be all right. Greenspan was the perfect man for the job.

Sheehan takes the reader through Greenspan's work advising Nixon, his term on Ford's Council of Economic Advisors, and his time advising Carter. Over the years Greenspan became a constant fixture in Washington, omnipresent at the cocktail parties and making himself ever-present to those who might be able to help his career.

Indeed, well before Greenspan had managed to make it into the upper circles of the Washington social scene, Ayn Rand had asked Nathaniel Branden: "Do you think Alan might basically be a social climber?"

It is Greenspan's relationship with Rand that even today drives the myth that Alan Greenspan is or was a doctrinaire free-marketeer. Sheehan disputes this version of history, noting that "Rand and Branden were instinctively suspicious of Greenspan's motivations" and that "Branden recalls a man without philosophical inclinations."

In the end, Greenspan's association with the Rand circle paid off (by Greenspan's standards) when Martin Anderson, a Randian who later was a member of the Reagan Administration "would prove instrumental in Greenspan's rise."

Nevertheless, one of Greenspan's very few actual contributions to the field of free market economics is his 1966 essay "Gold and Economic Freedom" which provides an eloquent defense of gold and sound money. The fact that Greenspan spent the entirety of his career at The Fed working against sound money illustrates the sort of philosophical conviction possessed by Alan Greenspan. Greenspan was so at home with cognitive dissonance, in fact, that years later, when Congressman Ron Paul gave Greenspan a copy of "Gold and Economic Freedom" and asked the Chairman if he'd like to add a disclaimer, Greenspan responded "No...I wouldn't change a single word."

Not surprisingly, the most engaging and dramatic part of Panderer to Power is the lead-up to the financial collapse of 2008. Sheehan meticulously documents Greenspan's commentary through the 1990s and into the last decade. From 1987 to the end of his term, Greenspan inflated the money supply nonstop. Interest rates, while occasionally moved slightly upward by Greenspan's Fed, fell again and again with Greenspan always claiming that there was neither a stock market bubble (as he did in 1999) nor a housing bubble (as he did in 2006).

In all this time, Greenspan virtually never considered inflation to be a serious problem, or even a potential problem. Unlike his predecessors Martin and Volcker, who at least recognized money-supply inflation as a problem, Greenspan instead created convoluted theories to explain why such inflation was not a problem, and why growth would constantly provide a fail-safe protection against price inflation.

His most famous theory of this sort was his productivity theory. For years, Greenspan waxed philosophical about how productivity due to new technologies would prevent imbalances in the economy from such massively loose monetary policy. This theory, coupled with a restructuring of the CPI to drive down the official inflation rate in the 1990's, allowed Greenspan to claim there was hidden wealth being created behind the dour statistics. In Greenspan's mind, corporate earnings (which were falling) were larger than they seemed due to productivity and the fact that "everyone had been wrong" by overestimating inflation.

Greenspan, before the burst of the tech and stock market bubble in 2000, had already begun claiming that it was impossible to predict or manage bubbles. Greenspan, however, never explained why the Fed bothered to employ economists and computer models since identifying trends and bubbles had become futile in his mind.

Having been shown to be utterly without insight regarding the 2000–2001 recession, Greenspan nonetheless escaped any widespread criticism. As he had done for years, Greenspan continued to gush over the benefits of derivatives and massive amounts of leveraging to finance ever more risky investments. Liquidity, with Greenspan's help, was redefined so that the term no longer referred to cash, but now referred to potential lines of credit.

Greenspan criticized American consumers for not spending enough on consumer goods and real estate. For Greenspan, consumer spending was essential regardless of where one got the money. So, in 2001 when Greenspan, who greatly approved of cashing out home equity to buy consumer goods, observed that the "general level of consumer expenditures seems to be holding up, I suspect in large part because of capital gains in homes," the next great bubble had already been set in motion.

As the housing bust grew ever closer, Greenspan showed true talent at giving terrible investment advice while being even worse at making predictions.

In 2004, Greenspan trashed fixed-rate mortgages, told Americans they could learn a thing or two from foreigners who supposedly used more adjustable-rate mortgages, and then declared that, compared to an adjustable-rate mortgage, a "traditional fixed-rate mortgage may be an expensive method of financing a home."

Greenspan also had no qualms about becoming the real estate industry's best friend in denouncing all talk of a housing bubble. In 2002, building on Greenspan's forecast, the chief economist at the National Association of Home Builders declared that "[t]he time has come to put this issue to rest. The nation's home builders have said it...and now Alan Greenspan has said it once again, in no uncertain terms; there is no such thing as a current or impending house price bubble."

In 2006, Greenspan declared that "[m]ost of the negatives in housing are probably behind us" and that the fourth quarter of 2006 will "certainly be better than the third quarter." The National Association of Realtors then launched a $40 million advertising campaign trumpeting Greenspan's enthusiasm about the housing market.

Although Greenspan had always had a terrible record on perceiving trends in the economy, Sheehan's story shows a Greenspan who becomes increasingly out to lunch with each passing year as he spun more and more outlandish theories about hidden profits and productivity in the economy that no one else could see. He spoke incessantly on topics like oil and technology while the bubbles grew larger and larger. And finally, in the end, he retired to the lecture circuit where he was forced to defend his tarnished record.

Sheehan excellently catalogs Greenspan's rise to power as an affable technocratic politician who played the part of an economist with a knack for numbers and for justifying inflationary policies that made Presidents and Congressmen happy. Greenspan always told everyone what they wanted to hear. The rich and famous basked in his perceived genius.

Today, those who still defend Greenspan's policies, if not the man himself, maintain that "no one" predicted the bubble and the crash. This isn't true, of course. The predictions of economists and investors who predicted the crash are well documented. But, Greenspan, The Maestro, said that everything was fine, so those with actual insight were ridiculed and ignored.

Yet, even with the end of the Greenspan era, little has changed. As Sheehan shows, Bernanke has made Greenspan look almost timid in his quest for debt, bailouts and endless leveraging.

Sheehan does not condemn the Federal Reserve as an institution in Panderer to Power, although it is clear from his work that The Fed is ill-equipped to resist the political pressures to print money around the clock. Sheehan is clear that some Fed Chairmen are more responsible than others. But given the very nature of the institution and the sheer amount of power it holds in inflating the money supply, bailing out the well-connected, and building mountains of debt in the name of growth, it is clear that the Federal Reserve is one of the greatest obstacles we now face in regaining a sound economy.

Ryan McMaken [send him mail] teaches political science in Colorado.

http://www.lewrockwell.com

© 2010 Copyright Ryan McMaken / LewRockwell.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in