The Three Lives Of Alan Greenspan

By John Rubino – Re-Blogged From Dollar Collapse

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.

He began 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:

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

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. If there were, the government would have to make its holding illegal, as was done in the case of gold in 1934 under FDR. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

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.

Awesome, right? But when put in charge of the Federal Reserve in the late 1980s, instead of applying the above wisdom — by for instance 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. Not surprisingly, debt soared during his long tenure.

Along the way he was 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.

He cut interest rates to near-zero in the early 2000s, igniting the housing bubble – which he was unable to detect along the way. He even made it into the dictionary, as the “Greenspan put” became the term for government bailing out its Wall Street benefactors.

From this the leveraged speculating community learned that no risk was too egregious and no profit too large, because government – that is, the Fed – had eliminated all the worst-case scenarios. Put another way, under Greenspan profit was privatized but loss was socialized.

Greenspan retired from the Fed in 2006 and, miraculously, began morphing back into his old libertarian self. A cynic might detect a desire to avoid the consequences of his past actions, while a neurologist might suspect senility. But either way the transformation is breathtaking. Consider this from yesterday:

Gold Standard Needed Now More Than Ever? – Alan Greenspan Comments

(Kitco News) – It would be best not to be short-sighted when it comes to gold; at least that is what one former Fed chair says.

“The risk of inflation is beginning to rise…Significant increases in inflation will ultimately increase the price of gold,” noted Alan Greenspan, Federal Reserve chairman from 1987 to 2006, in an interview published in the World Gold Council’s Gold Investor February issue.

“Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

However, it is really the idea of returning to a gold standard that Greenspan focused on — a gold standard that he said would help mitigate risks of an “unstable fiscal system” like the one we have today.

“Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today, we would not have reached the situation in which we now find ourselves,” he said.

“We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.”

To Greenspan, the reason why the gold standard hasn’t worked in the past actually has nothing to do with the metal itself.

“There is a widespread view that the 19th Century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable!” he said. “It wasn’t the gold standard that failed; it was politics.”

One of the nice things about the information age is that public figures leave long paper trails and can’t therefore easily escape their pasts. Greenspan’s past, being perhaps the best documented of any central banker in history, will haunt him forever.

But hey, at least he’s going out a gold bug.

CONTINUE READING –>

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“Clinton Prosperity” Of The 1990s Is A Myth

By David Stockman – Re-Blogged From Contra Corner

That Hillary Clinton has—–unaccountably——stood by her man for 40 years is her particular foible. But now she wants 320 million Americans to stand by him, too, by electing her President so she can make Bill the nation’s economic czar:

During a speech in Kentucky Sunday she referred to “my husband, who I will put in charge of revitalizing the economy ’cause he knows what he’s doing.”

Actually, he doesn’t.

Herein follows a two-part essay on why Bill and Hillary Clinton had precious little to do with the vaunted prosperity of the 1990s, and why another twofer would be exceedingly bad for the nation.

In truth, it was the doing of Alan Greenspan, and not in a good way.

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Fed Credibility Dwindles, Pension Funding Crisis Looms

By Clint Siegner From http://www.MoneyMetals.com

Fed officials jawbone the markets and spread disinformation. They figure it’s part of their job as central planners. It’s not enough to pull the levers and twist the knobs on interest rates, the money supply, and asset prices. They also use propaganda to manage investor psychology. It’s all smoke and mirrors.

Frustrated metals investors wonder just how long officials will maintain their hold over markets when so much of what they say turns out to be garbage and so much of what they do ends in failure.

The answer is perhaps not much longer. There are real cracks emerging in the credibility of Fed banksters. It has taken years, but investors and pundits are finally questioning whether the Fed knows what it’s doing. They have progressed from the blind worship of Alan Greenspan, who engineered first the Dot.com bubble and then the housing bubble that made people feel so wealthy, to wondering if they can believe a word Janet Yellen says.

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Sell The Bonds, Sell The Stocks, Sell The House —–Dread The Fed!

By David Stockman – Re-Blogged From http://www.DavidStockmansContraCorner.com

There is going to be carnage in the casino, and the proof lies in the transcript of Janet Yellen’s press conference. She did not say one word about the real world; it was all about the hypothetical world embedded in the Fed’s tinker toy model of the US economy.

Yes, tinker toys are what kids used to play with back in the 1950s and 1960s, and that’s when Janet acquired her school-girl model of the nation’s economy.

But since that model is so frightfully primitive, mechanical, incomplete, stylized and obsolete, it tells almost nothing of relevance about where the markets and economy now stand; or what forces are driving them; or where they are headed in the period just ahead.

In fact, Yellen’s tinker toy model is so deficient as to confirm that she and her posse are essentially flying blind. That alone should give investors pause—-especially because Yellen confessed explicitly that “monetary policy is an exercise in forecasting”.

Accordingly, her answers were riddled with ritualistic reminders about all the dashboards, incoming data and economic system telemetry that the Fed is vigilantly monitoring. But all that minding of everybody else’s business is not a virtue—-its proof that Yellen is the ultimate Keynesian catechumen.

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Clueless Fed?!

By Axel Merk – Re-Blogged From http://www.merkinvestments.com

“The Fed doesn’t have a clue!” – I allege that not only because the Fed appears to admit as much (more on that in a bit), but also because my own analysis leads to no other conclusion. With Fed communication in what we believe is disarray, we expect the market to continue to cascade lower – think what happened in 2000. What are investors to do, and when will we reach bottom?

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Keeping the Bubble-Boom Going

By Thorsten Polleit – Re-Blogged From http://www.mises.org

The US Federal Reserve is playing with the idea of raising interest rates, possibly as early as September this year. After a six-year period of virtually zero interest rates, a ramping up of borrowing costs will certainly have tremendous consequences. It will be like taking away the punch bowl on which all the party fun rests.

Low Central Bank Rates have been Fueling Asset Price Inflation

The current situation has, of course, a history to it. Around the middle of the 1990s, the Fed’s easy monetary policy — that of Chairman Alan Greenspan — ushered in the “New Economy” boom. Generous credit and money expansion resulted in a pumping up of asset prices, in particular stock prices and their valuations.

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Investment Legends Warn Of A Systemic Event

By Graham Summers – Re-Blogged From http://www.Gold-Eagle.com

More and more insiders are warning of a potential systemic event. The first sign of real trouble concerned a number of investment legends choosing to close shop and return investors’ capital.

The first real titan to bow out was Stanley Druckenmiller. Druckenmiller maintained average annual gains of nearly 30% for 30 years. He is arguably one of if not the greatest investor of the last three decades.  In 2010, he chose to close shop, foregoing billions in management fees.

Druckenmiller was not alone. In 2011, investment legend Carl Icahn closed his hedge fund to outside investors. Again, here was an investment legend who could lock in billions in investment management fees choosing to close up shop.  He has since stated he is “extremely worried” about stocks.

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