Saturday, February 16, 2013

Alan Greenspan is Baaack (and as always, ignoring the elephant in the room)

On CNBC last night, Maria Bartiromo interviewed former money pumper Alan Greenspan, about sequestration. Greenspan said in part:
I find it very difficult to find a scenario in which [the sequester] doesn't happen [...] the issue is how does it affect the stock market[...]the stock market is the key player in the game of economic growth.[...]if the stock market can hold up through this, then the effect will be rather minor. data shows that not only are stock markets a leading indicator of economic activity, they are a major cause of it.
This is quite the wisdom from a retired money pumper. As Austrian school economists explain, under the Federal Reserve System, Fed money pumping will have its first impact on the capital goods sector. The stock market is the most liquid part of the capital goods sector. So no kidding, the stock market is the leading indicator of economic activity, when the Fed is pumping money into the sector!

Greenspan totally ignored the elephant in the room, that is the Fed money printing that is resulting in the manipulated boom.

Greenspan, in other words, picks up the tale in the middle of the story, ignoring Bernanke's money pumping, in the same manner that he ignored his own money pumping when he warned in December 1996 of "irrational exuberance" in asset prices. From the time Greenspan took over as Fed chairman in January 1987 to the time of his "irrational exuberance" warning, money supply (M2) increased by nearly a trillion dollars, an increase of approximately 35%.

It wasn't irrational exuberance that drove asset prices back then, it was Greenspan's irrational money printing. Bernanke is doing the same thing at present. If anything, Bernanke money printing is even more crazed. Since the financial panic in September 2008, he has increased the money supply (M2) by approximately $3 trillion, an increase of 40%!

Greenspan ignored this money printing in his comments to Bartiromo. But it is the main driver in the recovery in the stock market and real estate markets. It remains to be seen as to the amount of impact all this new money will have at the consumer level, as it works its way through the economy. Consumers appear to be spending more, which likely means a falling desire to hold cash balances. A falling desire to hold cash balances by consumers and a Fed on a money printing binge is a good combination for accelerating price inflation in the not too distant future. Which, by the way, was not mentioned at all be Greenspan.

As for sequestration, cuts in government spending, no matter how they are done, are always a good thing. It puts more money into the private sector. That said, and this is something else Greenspan didn't mention, the "cuts" in spending from sequestration are not real cuts. Only D.C. people would call them cuts. They are simply a reduction in the rate of government spending. Ron Paul informs on what sequestration will really mean:
While there was much hand-wringing over the “draconian” cuts that would be imposed by sequestration, in fact sequestration does not cut spending at all. Under the sequestration plan, government spending will increase by 1.6 trillion over the next eight years. Congress calls this a cut because without sequestration spending will increase by 1.7 trillion over the same time frame. Either way it is an increase in spending.
Here's Dr. Paul on the military cuts in sequestration (my highlight):
Even the supposedly draconian cuts called for in the “sequestration” budget bill would keep military spending at 2006 levels when adjusted for inflation, which is about as high in terms of GDP as during World War II. It’s also more than the top 13 foreign countries spend on defense combined. Furthermore, sequestration only cuts military spending for one year after taking effect. In future years, Congress is free to reinstate higher military spending levels

Here's Greenspan.

(ht Nick)

1 comment:

  1. Ah, he was referring to sequestration....I was thinking something much bigger...thanks for the analysis Wenzel.