Tag: Alan Greenspan

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free trade & free markets ideological culture national politics & policies

Greenspan’s Tarnished Standard

Long ago, before becoming Federal Reserve Inflater-​in-​Chief, Alan Greenspan advocated a gold standard.

The idea is that everybody pays for things in gold, a natural medium of exchange. Receipts for gold used for convenience in trade are “backed” and can be easily redeemed. With appropriate protections in place, politicians can’t dilute the value of money by printing more receipts or by shuffling phosphor dots on a computer screen.

But our world is very different.

At the Fed, Greenspan oversaw a lot of credit expansion, encouraging a horde of folks who couldn’t afford homes to take out mortgages. Any discussion of the financial crisis of 2007 – 2008, or why “we” “failed to predict” it, must discuss Fed policies and other government interventions.

Not, though, if you’re a former Federal Reserve chairman intimately aware of those policies and fully capable of grasping their baleful effects. Then you blather about “irrational exuberance,” or, in a new article for Foreign Affairs magazine, Keynes’s “animal spirits.”

Not a word about how monetary inflation spawns malinvestments that must eventually be washed away. Indeed, the best interpretation of Greenspan’s new book, or his appearance on The Daily Show with Jon Stewart, is that Greenspan is doing his utmost to deflect attention from his own disastrous record.

He’d rather have us believe that “free markets” failed in 2008, not — oh, no! — the policies he himself had pushed since obtaining his seat as head honcho at America’s inflationary central bank.

This is Common Sense. I’m Paul Jacob.

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national politics & policies too much government

Default by a Thousand Cuts

Alan Greenspan half-​smilingly argues that U.S. Treasury bonds will never be defaulted because “we can always print money.” How reassuring. 

It’s one thing to pull money out of the proverbial magic cookie jar and place it in bank ledgers (“high-​powered money,” or QE1, QE2) while people are substituting consumption with saving, fearful of the near-​term prospects (increasing their “demand for money”). It’s quite another to do that while people expect prices only to rise. Massive increase in the supply of money (“printing money”) while people anticipate inflation (lowered “demand for money”) can lead to runaway inflation, hyperinflation.

America hasn’t experienced that since the Civil War. But Germany has (after World War I), as has Zimbabwe (just recently). It can ruin a whole way of life.

After Germany’s hyperinflation, Nazism arose. 

Greenspan may have been trying to make a subtle point, but the blunt point remains: Default is likely, for inflation itself serves as a form of default. Under Greenspan’s scenario, the Federal Reserve, conspiring with Treasury, would, by “simply” printing money, pay debt with decreased-​value dollars. 

The ancient Chinese had a perverse form of torturous execution: Death by a thousand cuts. Inflation is like that, it’s torture for almost everyone, default by a … gazillion devaluations.

The only way around this is to make very different cuts — in federal spending.

That’s not torture, that’s the road to recovery. 

It’s unlikely, of course, because, to politicians and insiders, cutting spending seems like torture.

This is Common Sense. I’m Paul Jacob.

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national politics & policies porkbarrel politics

Good and Bad in the 112th

The 112th Congress is beginning to take shape, and, well, we have good news and bad news.

Good news first: Ron Paul has been slated to chair the Domestic Monetary Policy Subcommittee.

The Texas congressman has been toiling away at the margins of power on Capitol Hill for years. A proponent of a gold standard and a free-​marketer of the “Austrian” School, he has been a voice crying in the wilderness. One of the few people in Congress who did not treat Alan Greenspan as a divine oracle, he is now one of Ben Bernanke’s harshest critics. 

Of course, after recent events and bailouts and all, Federal Reserve Chairman Bernanke has lots of critics.

As chair of the subcommittee that watches over the Fed, Ron Paul has finally attained a position to accomplish something. This is a major reversal in the power structure. We can’t expect miracles (Ron Paul being but one man), but do expect fireworks.

Now, the bad news. 

It’s been less than a month since Republicans in the House voted on a moratorium on earmarks. And already they are, reportedly, beginning to feel queasy. Perhaps as a sign of a general turncoatish nature, the next chair of the House Appropriations Committee is set to be Rep. Hal Rogers.

Sixteen-​term congressman Rogers has earned a reputation for pushing pork. His hometown has received so much federal largesse it’s called “Mr. Rogers’ Neighborhood.”

Still, he says he’ll enforce the pork moratorium. We’ll see.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets national politics & policies too much government

The “Confidence” to Accept a Free Lunch

Does the alleged “success” of the cash-​for-​clunkers program prove consumer confidence is on the rebound?

Cash-​for-​clunkers is the new handout program for car owners and car dealers. Bring in an old car with lower mileage than the latest models, and the government gives you $4,500 toward a new car.

It took about a nanosecond to dole out the first billion dollars. So Congress tossed another two billion into the pot.

Alan Greenspan, former Federal Reserve chairman, was at the controls when the Fed’s massive credit-​for-​clunky-​mortgages program helped create the housing bubble. So he’s an expert. He’s been in the news lately saying that although he has his doubts about the  clunkers program, its “success” shows renewed “confidence in the economy.”

Question: If the government simply threw bags of cash at people, and people stooped to pick up this cash, would this also prove “confidence in the economy”?

Observation: The clunker subsidies comes from somebody. Because the recipients didn’t directly drop by, directly put a gun to our heads, and directly compel us to write out a check for $4,500, we’re not supposed to notice. But if you had just been forced to turn over $4,500 to subsidize somebody’s new car, you’d probably say your household economy had just taken a hit. 

Your confidence might even be shaken.

This is Common Sense. I’m Paul Jacob.