Alan Greenspan’s Credibility is an Accident that is still Happening

Alan Greenspan’s Credibility is an Accident that is still Happening

Alan Greenspan’s Credibility is an Accident that is still Happening


In a article last week, the former Fed Chairman is quoted to be worried about the “crazies.”

For some unknown reason, former Federal Reserve Chairman Alan Greenspan’s, 90 anni, opinions are still taken seriously.

No one person has done more to damage the US economic long run, which his Keynesian training told him would not matter, ever.

“We are living in that increasingly desolate long run and yet somehow he has maintained credibility in the media. What is most offensive is that he now acknowledges the economic despondency, but only as if it was just mere circumstance or accident.” said Jeff Snider, head of global investment research for Alhambra Investment Partners

In has article last week Mr. Greenspan voiced concern that the US economic and political system could be undermined by what he called “crazies.”

“It is the worst economic and political environment that I’ve ever been remotely related to,” Mr. Greenspan, told a conference in Washington last Tuesday evening sponsored by Stanford University and the University of Chicago.

This is no accident, as there is a direct line from his stewardship to the increasingly worrisome possibilities that become more probable the longer this depression/stagnation continues.

Historically, lengthy periods of stagnation do not spontaneously turn into rapid and healing growth, nor do policy makers suddenly figure it out.

A catastrophe of some degree forces the “day of reckoning” and only then are solutions presented and executed.

Mr. Greenspan recognized that there was not any monetary policy anywhere in the world. As early as Y 1996 in his famous “irrational exuberance” speech, the he admitted that the very concept of money had gotten away from central banking a long time ago.

“Unfortunately, money supply trends veered off path several years ago as a useful summary of the overall economy. Thus, to keep the Congress informed on what we are doing, we have been required to explain the full complexity of the substance of our deliberations, and how we see economic relationships and evolving trends.

There are some indications that the money demand relationships to interest rates and income may be coming back on track. It is too soon to tell, and in any event we cannot in the future expect to rely a great deal on money supply in making monetary policy. Still, if money growth is better behaved, it would be helpful in the conduct of policy and in our communications with the Congress and the public.”

The Big Q: Did money ever become “better behaved?”

The Big A: No, as it was  unreasonable to suggest then, as it would be to do so now 20 years on.

One need look no further than Mr. Greenspan’s own words in June 2000 to settle that issue: “The problem is that we cannot extract from our statistical database what is true money conceptually, either in the transactions mode or the store-of-value mode. One of the reasons, obviously, is that the proliferation of products has been so extraordinary that the true underlying mix of money in our money and near money data is continuously changing. As a consequence, while of necessity it must be the case at the end of the day that inflation has to be a monetary phenomenon, a decision to base policy on measures of money presupposes that we can locate money. And that has become an increasingly dubious proposition.”

That disqualifies him and his minions from any discussion about money and especially economy can only be a matter of ideology shared by some economists, and the media.

Alan Greenspan’s US Fed abandoned its primary mission because of math. Regressions alone told him and the rest of them that interest rate targeting would be sufficient monetary control even though there was every indication that just wasn’t the case. As his ability to define and measure money had only become worse by the middle of Y 2000, perhaps the gigantic dotCom stock bubble that had just burst was enough of a clue that what was wrong in money should not have been so easily dismissed.

Even in what he said at that FOMC meeting one would think that any central bank caught in a position of not being able to define money would immediately change that.

The Big Q2: Did the Fed expend every resource to rectify this knowledge gap?

The Big A: No, just the opposite as they openly proved in discontinuing M3 in March 2006, writing in the official press release that the “costs of collecting the underlying data and publishing M3 outweigh the benefits.”

People will be able to connect his “dubious proposition” about money to then his “conundrum” and finally the absurd “global savings glut” that all presaged 1st the Great Recession.

If this is the “worst economic” environment as he claims now, and the evidence is overwhelming that it is, it was born in his “crazy” ideas.

Alan Greenspan is shamelessly trying to get ahead of what he is calling the crazies who at some point will start digging into what he actually did at the Fed, the same junk theory that he spouts and people pay to hear, Nutz.

When that happens, we will all see and know who is “crazy”. Alan Greenspan is not the “Maestro” as some still refer to him.

When I was actively writing about the US economy back in that frame, I referred to him as “Alan Greenscam”.

Monday, the US major stock market indexes finished at: DJIA -3.63 at 18120.17, NAS Comp -9.54 at 5235.03, S&P 500 -0.04 at 2139.12

Volume: Trade was light with about 760-M/shares exchanged on the NYSE.

  • Russell 2000: +8.5% YTD
  • S&P 500: +4.7% YTD
  • NAS Comp: +4.6% YTD
  • DJIA: +4.0% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Neutral (-0.20) Bearish (-0.39) Bearish (-0.35) Neutral (0.12)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bearish (-0.27) Bearish (-0.27) Bearish (-0.44) Neutral (-0.11)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (0.19) Neutral (-0.04) Bullish (0.35) Bullish (0.25)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.31) Neutral (0.23) Very Bearish (-0.55) Very Bearish (-0.62)

Stay tuned…


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