Greenspan legacy bulletin, 2002

NEWS CONTENTS

• 20021029 : Kitco - Exclusive Commentaries ( Kitco - Exclusive Commentaries, Oct 29, 2002 )
• 20020808 : The case against Alan Greenspan - Aug. 6, 2002 by Mark Gongloff, CNN/Money Staff Writer ( The case against Alan Greenspan - Aug. 6, 2002, Aug 8, 2002 )

Old News ;-)

[Oct 29, 2002] Kitco - Exclusive Commentaries

Gold Rigging Leads to a Troubled "US Centric" World Economy"

I greatly admire Stephen Roach, Chief Economist at Morgan Stanley because he seems to have the courage to speak the truth even when the truth is not always politically correct on Wall Street. Thank God there still remains one or two objectivist thinkers on Wall Street! Roach has labeled the global economy as "US Centric." By that he means that in order for the global economy to retain even a faint pulse, the U.S. consumer must continue to spend stimulate the demand side of the global economy by continuing to spend year after year, more than he earns. In other words, Americans must continue to dig themselves further and further into debt, while our capital markets continue to suck in $1.5 billion per day to make up for America's daily shortfall of savings.

Roach has been saying ever more frequently of late that for the global economy to turn to some semblance of supply and demand balance, the dollar must become weaker. That would help reduce demand and increases savings in the U.S. and reduce savings and increase demand in other parts of the world. Roach says that the dollar must decline vis-à-vis the Euro and the Yen by 15% and 20% if it is to be restored to a level that makes sense on the basis of trade.

This past week, Dr. Roach finally began to talk about an issue my friend Dr. John Whitney, CEO of Itronics has been so concerned about for at least a years and that is the artificially low level of the Chinese Renminbi vis-à-vis the dollar. Dr. Whitney has noticed that bulk commodities are being shipped half way around the world, through two canals before being imported into the U.S. Barite is one commodity the Chinese are selling into America and frankly the only reason they can compete with American producers of barite is because of the overvalued U.S. dollar or if you will, the undervalued Chinese currency. This is obviously true because: a) Production of barite is capital intensive in China just as it is here, so there are not low cost labor advantages and b) transportation costs to ship a heavy commodity around the world is extremely high. There fore the only plausible explanation for the ability of china to sell these kinds of products into the U.s. is the overvalued dollar.

[Aug 8, 2002] The case against Alan Greenspan - Aug. 6, 2002 By Mark Gongloff, CNN/Money Staff Writer

The case against Alan Greenspan... To the list of those responsible for the economy's pain, some have added the Maestro's name.

NEW YORK (CNN/Money) - There's a growing list of shamed corporate executives, Wall Street analysts and inept government officials being blamed for the current misery in the economy and the stock market, and many of those names are obvious.

But some observers have put one name at the top of the list that probably will surprise most people -- Alan Greenspan.

That's right, the Maestro, the Federal Reserve chairman often credited with the magical ability to control global markets and economies with the mere sound of his voice, the man who allegedly whipped inflation.

These critics blame Greenspan for the outrageously swollen bubble in stock prices in the late 1990s, which led to excesses of investment that overheated the economy and threatened inflation, forcing the central bank to raise interest rates in 1999 and 2000, which led to a recession that began in March 2001.

"He was a very poor central bank chairman," said James Grant, editor of Grant's Interest Rate Observer. "He was passive in the face of what will go down as a very destructive bubble."

If only Greenspan had stepped in earlier -- and one vague warning about "irrational exuberance" doesn't count -- the bubble wouldn't have been so big and the subsequent popping wouldn't have been so painful, Grant and other critics say.

Fed officials were not available for comment.

At the very least, critics say, Greenspan could have made the symbolic gesture of tightening margin requirements, which the Fed controls but hasn't touched since 1974. Margin buying is the process by which investors borrow from brokers to buy stocks. Rampant margin buying encourages speculation, and the Fed could have clamped down on brokers' ability to lend.

"The Fed was given control of margin lending in response to the excess speculation in the 1920s," said Lacy Hunt, chief economist at Hoisington Investment Management. "When that bubble burst, a lot of small individuals were hurt, and the Fed was given that tool to use to prevent those types of situations from happening again.

"It was not used this time, even though it was debated in Fed circles -- Greenspan opposed it," Hunt added.

Greenspan also could have taken a humbler attitude about his own substantial myth, lowering expectations about his and the Fed's ability to miraculously fix the world's every financial problem.

"People called him clairvoyant, and he never said, 'Shucks, it's not me, it's the cycle -- I am a federal employee. I don't see around corners, and I never have. Don't put too much stock in this bureaucracy called the Fed,'" James Grant said.

While Grant didn't want to second-guess the Fed's failure to raise its target for short-term interest rates during the late 1990s -- which would have lessened the funds available for over-hyped dot.com stocks, fiber-optic cable and similarly foolish investments -- others are certainly willing to do so.

Relatively mild interest-rate hikes -- say, 25 basis points every six months -- in the late 1990s would have been met with groans of agony from Wall Street but would have kept the bubble under control, according to James Padinha, economic strategist at Arnhold & S. Bleichroeder.

"Once the excesses got to the point where the Fed had to do something about them, the kinds of rate hikes we eventually did see had an outsized impact on the economy -- which ended up tanking, and then the Fed had to ease drastically," Padinha said.

In Greenspan's defense

Padinha notes, however, that Greenspan has been an excellent crisis manager. Greenspan's legend was largely built, in fact, on guiding the Fed's quick and reassuring action in the wake of the 1987 stock-market crash, the 1998 crises in Asia and Russia, the Sept. 11, 2001, terrorist attacks and more.

And other defenders -- of which there are many -- note that it's all too easy to look backward and see the precise inflection points where strong economies become inflationary economies, where sluggish economies become recessions and where strong stock markets become bubbles. Timing policy perfectly to prevent such inflection points is more a matter of luck than anything else.

And the Fed is not charged with manipulating stock markets. It has two roles -- fighting inflation and helping the economy grow.

"Greenspan doesn't need to offer any meaculpa," said Wayne Ayers, chief economist at Fleet Boston Financial and a former Fed economist. "The Fed has no mandate to contain asset market inflation -- using monetary policy to deflate a bubble can have severe consequences."

"No one should take seriously the notion that he could have explicitly aimed at capping the wealth of the public, and there would have been hell to pay had he attempted to do so," Ayers added.

Defenders also note that the Fed has made deep and powerful rate cuts when it saw the economy was in trouble, while unemployment and inflation have been largely in check for years.

"Greenspan's perfectly fulfilled his mandate," said Brown Brothers Harriman economist Lara Rhame, another former Fed economist. "And there are a couple of things he couldn't have manipulated even if he'd wanted to [such as] Enron and WorldCom -- these are things that the Fed can't possibly have been prepared for."

Still, some Wall Street critics counter that the Fed didn't see the trouble soon enough -- a charge similar to the one levied by supporters of the first President Bush, whose presidency was cut short by a sluggish recovery from the 1990-91 recession.

The Japan syndrome

Today, with the Fed's target for a key short-term interest rate at 1.75 percent, a 40-year low, the economy still hasn't caught its breath, and a growing number of economists are fretting that another downturn is on the way, requiring still more rate cuts and raising ever-scarier comparisons with Japan, where interest rates are at zero, but whose economy still can't get moving.

Though most economists think the United States is fundamentally different from Japan, there's at least a risk that the low, low interest rates of the past year have encouraged consumers to take on too much debt and eat up too much home equity already, meaning another downturn -- which could lead to more layoffs and tighter credit requirements -- could catch consumers without the ability or desire to borrow any more money.

"We're in a situation where the economy is the most highly leveraged in the post-War period," said Paul Kasriel, chief economist at Northern Trust Co. in Chicago. "If the Fed had to raise interest rates, that could bring the whole system down. And it's not clear that holding rates where they are or lowering them will save us from another recession."

Kasriel and other critics of the current Fed modus operandi would prefer to see monetary policy put on a sort of automatic pilot, tightening the supply of money when demand for loans is high and loosening it when demand for loans is low.

"The Fed is a price fixer; it fixes the price of short-term credit," Kasriel said. "If there's an increase in demand for credit, interest rates want to rise. But because the Fed is fixing the price of credit to keep rates from rising, it has to create more reserves or allow banks to create more money, and that's what leads to bubbles."

For example, companies borrowed extensively in the late 1990s to buy back stock in order to fight the dilutive effect of issuing reams of stock options. If the Fed had been on auto-pilot, allowing interest rates to rise as companies borrowed, then perhaps companies wouldn't have gotten themselves in so much debt.

Such an approach to monetary policy might also remove the cult of personality that has developed around the Fed chairman. Perhaps fewer people would care to hear his opinion about, for example, tax cuts -- an issue that Greenspan has discussed extensively during his tenure, having great impact on fiscal policy, an area he's supposed to be leaving alone.

"He goes up to Congress, and they ask him questions about everything except monetary policy," Kasriel said. "It's unprecedented that a central banker is sort of viewed as an omniscient economic policy czar. It's not his responsibility."

With such a hands-off philosophy at least partially in mind, James Grant has devised what might be the most radical approach for future central bankers.

"When I'm asked what I would do if I were Fed chairman, my invariable answer is, 'Resign,'" he said.

Etc

Society

Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy

Quotes

War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotes :  Somerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose Bierce :  Bernard Shaw : Mark Twain Quotes

Bulletin:

Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law

History:

Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOS :  Programming Languages History : PL/1 : Simula 67 : C : History of GCC development :  Scripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-Month :  How to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D

The statements, views and opinions presented on this web page are those of the author (or referenced source) and are not endorsed by, nor do they necessarily reflect, the opinions of the Softpanorama society. We do not warrant the correctness of the information provided or its fitness for any purpose. The site uses AdSense so you need to be aware of Google privacy policy. You you do not want to be tracked by Google please disable Javascript for this site. This site is perfectly usable without Javascript.

Last modified: March 12, 2019