The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Thursday, March 17, 2011

Alan Greenspan: Giving Advice - Really?

Joe:  I saw Alan Greenspan on C-SPAN the other night (link to video below) and he seems to be blaming government activism for (stimulus) for the lag in recovery. This is the guy that was in charge of massive economic failure and he didn’t see it coming, he was surprised by greed - unbelievable. He couldn't understand that executives treat corporations like other people's piggy banks. He of course, with his free market ideas, will gain traction with the Republicans. I am a free market kind of guy but everyone needs to remember what his interests are – strengthening and preserving the Federal Reserve, helping the US economy is a distant second on his agenda. How free market is it to allow such an important institution as the Federal Reserve to be treated with a "hands off" policy. Why does this institution deserve our trust and why in the world does Alan Greenspan may have our ear but why might he think he has people's trust? -Bob

by Peter Schiff
March 10, 2011
As the world confronts one of the most critical periods of economic upheaval that it has ever seen, it is clear that our most influential economic stewards have absolutely no idea what they are doing. But, like kids with a new chemistry set, they are nevertheless unwilling to let that stand in the way of their experimental fun. As they pour an ever-growing number of volatile ingredients into their test tubes, we can either hope that they magically stumble on the secret formula to cure the world's ills, or more pragmatically, we can try to prepare for the explosion that is likely to result.

Recent comments from current and former Federal Reserve Chairmen, and from the leaders of the European Central Bank, have starkly illustrated this stunning lack of understanding. In an extended interview on CNBC today, former Fed Chairman Alan Greenspan, once considered the sagest of all economic gurus, admitted that he had no idea whether the Fed's current quantitative easing program will help or hurt the economy. The Maestro simply said that we must wait and see, and if positive economic indicators come, then we may begin considering the policy to be a success. That's some serious insight.

In other words, after dedicating his life to the study of macroeconomics, Greenspan is left with no deep understanding of how the injection of trillions of dollars of printed money affects an economy. The chicken who plays tic-tac-toe in Chinatown could likely offer the same level of critical analysis. To paraphrase Nancy Pelosi: according to Greenspan, we have to conclude the policy to know if it works. Although I have never been thought of as an economic expert by anyone with actual access to power, permit me to offer a thought on the subject: printing money creates inflation, which weakens an economy. Unfortunately, this kind of common-sense thinking never seems to penetrate academic circles.  

In the end, we will overwhelm our competitors with a show of extreme force. By the time the Fed rolls out QE IV or QE V, the U.S. will emerge as the undisputed winner of the currency war. To the victor go the spoils, which, in this case, will be higher consumer prices and interest rates and lower standards of living. On the other hand, the losers will enjoy rising living standards, as their stronger currencies serve to lower prices and increase consumption. If that doesn't make perfect sense, maybe we should run it by the chicken.
Peter Schiff is an investment advisor, financial commentator and author of Crash Proof and the recently released illustrated fable, How an Economy Grows and Why It Crashes.

By Jennifer Liberto, senior writerMarch 15, 2011: 4:28 PM ET
WASHINGTON (CNNMoney.com) -- Massive government intervention to save the economy is to blame for the lagging recovery, Former Federal Reserve Chairman Alan Greenspan said Tuesday.

Greenspan argued for less government intervention to get the recovery rolling and businesses investing in equipment and plants. "What we need to do now is to calm down; let things move by themselves," he said at a forum at the Council of Foreign Relations. "And indeed the rate of activism has decreased significantly and the ratio of capital flow has inched back up."

Some economists blame Greenspan, who served as Fed chair from 1987 to 2006, for keeping interest rates too low for too long and for failing to sound the alarm that Wall Street was over-leveraged and running wild. But with Republicans in control of the House, Greenspan's views are starting to gain an audience again. Many Republicans share his opinion that intervention has created uncertainty and deterred private sector investing.

Greenspan targeted deficits created by the $787 billion 2009 Recovery Act as the main culprit behind the current sputtering recovery. Why are deficits to blame? Greenspan said the Treasury Department's borrowing "crowds out" companies from finding similarly low interest rates to borrow funds for capital investments on equipment and plants. His concern over deficits is why Greenspan argued last year for the expiration of the Bush-era tax breaks he once championed.

But Greenspan goes further in his criticism of government intervention, also blaming housing programs for having delayed and prolonged foreclosures. He said such efforts have created uncertainty about when the housing market will hit rock bottom, at which point speculators can rush in and start buying up houses.

Fmr. Fed Chair Alan Greenspan
Washington, DC
Tuesday, March 15, 2011
Federal Reserve Chairman Alan Greenspan says government activism is slowing economic recovery in the country. His comments are in a paper he wrote for the Council of Foreign Relations. Mr. Greenspan, who headed the Federal Reserve until 2006, has admitted in the past that his tendency to avoid regulation may have been partially to blame for the economic collapse.

Author:  Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System
March 3, 2011
Alan Greenspan breaks down why the road to economic recovery has been so slow.
SUMMARY: The US recovery from the 2008 financial and economic crisis has been disappointingly tepid. What is most notable in sifting through the variables that might conceivably account for the lacklustre rebound in GDP growth and the persistence of high unemployment is the unusually low level of corporate illiquid long-term fixed asset investment. As a share of corporate liquid cash flow, it is at its lowest level since 1940. This contrasts starkly with the robust recovery in the markets for liquid corporate securities. What, then, accounts for this exceptionally elevated level of illiquidity aversion? I break down the broad potential sources, and analyse them with standard regression techniques. I infer that a minimum of half and possibly as much as three-fourths of the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory and financial environments faced by businesses since the collapse of Lehman Brothers, deriving from the surge in government activism. This explanation is buttressed by comparison with similar conundrums experienced during the 1930s. I conclude that the current government activism is hampering what should be a broadbased robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.

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