What happened to Alan Greenspan? Before helming the Federal Reserve System, Greenspan was an objectivist, a student of Ayn Rand, a proponent of sound money and the Gold Standard and a critic of central economic planning. When he entered the Fed, he became obsessed with bubbles, manipulating markets, aiding Wall Street and hurting the dollar.
Greenspan, who is the authority on bubbles, told the Wall Street Journal’s MarketWatch on Friday that the Fed can’t prevent market bubbles from forming and they can’t be stopped unless the free market pops them. The former Fed Chair argued bubbles are the result of human nature, adding that there are limits as to what monetary policy can achieve.
According to Greenspan, bubbles create themselves and maintain their own life.
“When bubbles emerge, they take on a life of their own. It is very difficult to stop them, short of a debilitating crunch in the marketplace,” Greenspan stated. “I do believe that central banks that believe they can quell bubbles are living in a state of unrealism.”
Moving forward, Greenspan argues that the biggest issue facing the central bank and Janet Yellen is unloading its astronomical $4 trillion balance sheet, which is pretty much the amount of debt sitting on the nation’s books. He conceded that it’ll be difficult and the current economic recovery may metastasize into a “false dawn.”
The reason why there is a paucity of productivity enhancement and the standards of living are eroding is because there isn’t enough savings and capital investment – though the Fed is the cause of this with artificially low interest rates that distort the market and send the wrong messages to financial institutions and businesses, while also discouraging people from saving amid inflation.
“At root, the problem is government deficits suppressing the national savings rate. Until we come to grips with that, it is going to be difficult to get the economy moving in a sustainable way,” explained Greenspan, who recently published the book “The Map and The Territory.”
If the central bank does finally start raising rates, Greenspan suggested markets to take cover.
“Markets have always been sensitive. They reflect animal spirits. One area I was always doubtful about during my tenure is how much we could effectively communicate to markets, because they were always second guessing the Fed,” added Greenspan.
In 1912, Ludwig von Mises wrote the incredible “Theory of Money and Credit,” in which he discusses how financial institutions expand credit that cannot be sufficiently met by their own assets and funds of their clients, but is both sustained and promoted by central banks through low interest rates. The extra credit is inserted into the economy from heightened borrowing to be used for projects, but inevitably results in malinvestments. This is how the boom-bust cycle operates.
Economist Murray N. Rothbard wrote in the groundbreaking “America’s Great Depression”:
“Entrepreneurs are largely in the business of forecasting. They must invest and pay costs in the present, in the expectation of recouping a profit by sale either to consumers or to other entrepreneurs further down in the economy’s structure of production. The better entrepreneurs, with better judgment in forecasting consumer or other producer demands, make profits; the inefficient entrepreneurs suffer losses. The market, therefore, provides a training ground for the reward and expansion of successful, far-sighted entrepreneurs and the weeding out of inefficient businessmen. As a rule only some businessmen suffer losses at any one time; the bulk either break even or earn profits. How, then, do we explain the curious phenomenon of the crisis when almost all entrepreneurs suffer sudden losses? In short, how did all the country’s astute businessmen come to make such errors together, and why were they all suddenly revealed at this particular time? This is the great problem of cycle theory.”
Bubbles are prevalent all around us today – bonds, real estate, social media, student loans – because of the Fed pumping money into the system and artificially lowering interest rates, which creates a toxic environment and perhaps moral hazards. In other words, the Fed initiates the bubbles and the Fed can end them as well.
Indeed, when malinvestment does transpire in a free market a slight recession is needed, which takes a short period of time rather than what we saw during the Great Depression and the Great Recession a few years ago. In other words, the incompetent businesses are sent out of the market and their profitable assets are taken over by the competent businesses.
mostly Jew money changers to blame. Evil race of thieves