Alan Greenspan: “The Economy Sucks. Buy Gold.”


Alan “the Maestro” Greenspan is the former chairman of the Federal Reserve. He was also one of the foremost architects of the 2008 recession. Greenspan is severely at fault for the massive housing bubble of the early 2000s, which he has yet to willingly accept any blame for. But perhaps he is finally facing the music.

Greenspan has been struck with a rare spell of lucid clarity. As the Wall Street Journal reports:

Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.

He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”

It sounds to me like Greenspan thinks this is a wise insight he gained after years of quiet introspection. Give me a break. Austrian economists, like Peter Schiff and Ron Paul, had been saying for years that the Fed’s bond-buying program would do little more than inflate asset prices, keep interest rates low, and leave us a stagnant economy. Austrians have maintained since the beginning of the bond-buying program, in 2008-2009, that it would do nothing for the general economy, beyond making the super-rich more rich while making it harder for everyone else to become rich. That is exactly what has happened.

Greenspan is not making a wise retrospective insight; he’s merely overcoming his cluelessness. He is behind the curve.

He observed that history shows central banks can only prick bubbles at great economic cost. “It’s only by bringing the economy down can you burst the bubble,” and that was a step he wasn’t willing to take while helming the Fed, he said.

Austrian Business Cycle theory basically states that irrational booms in the economy cause major busts. The worst perpetrators of fueling irrational booms are governments and central banks. The government is always ready to accept credit for a boom; but they blame everything and everyone else for the bust.

The Federal Reserve fueled a major bubble in the 2000s. Greenspan ostensibly knew what was going on (which I might dispute), but said he wasn’t willing to bring the economy down. I guess that makes him sound determined and courageous. It couldn’t be further from the truth. Greenspan’s actions as Fed Chairman directly caused the massive housing bubble; he is saying that he wasn’t willing to face up to the consequences of his own policy during his tenure. He decided to shove it off on some other poor sap.

The recession of 2008 was more than a recession; it was a golden opportunity. In fact, all recessions are actually golden opportunities, in a manner of speaking. In a recession, bad investments are liquidated. People default on debt.  Businesses fail. Banks fail, unless the government steps in to save them. That’s the recession part; but the money and capital that was previously stuck in bad investments is now free to find its way into productive use. New businesses form. New investments are made. The economy rebuilds. It is a golden opportunity for money and capital to be utilized by entrepreneurs and risk-takers in a productive fashion. The golden opportunity disappears when the government, like a dog to its own vomit, returns to intervene with some new scheme, causing malinvestment to begin once again. Hello, bubble. Hello, bust.

If the 2008 recession had been allowed to run its course without government intervention, I think the recession would already be long gone, and we’d be in a true recovery phase: rising employment, less people on welfare, better business prospects. Unfortunately, the government did not allow the economy to heal through recession. They opted to shovel money into major banks and corporations who were eyballs-deep in bad investments, keeping them afloat. Bad investments were not allowed to be liquidated. Major banking institutions and corporations were spared free-market punishment, which has instead been shoved off on taxpayers. This course of action has been great for Wall Street; it’s been disastrous for Main Street. You can thank Alan Greenspan and his successor Ben Bernanke, ideological Tweedle-Dums and Tweedle-Dees, for the poor economy.

The question of when officials should begin raising interest rates is “one of those questions I cannot answer,” Mr. Greenspan said.

He also said, “I don’t think it’s possible” for the Fed to end its easy-money policies in a trouble-free manner….

“Recent episodes in which Fed officials hinted at a shift toward higher interest rates have unleashed significant volatility in markets, so there is no reason to suspect that the actual process of boosting rates would be any different, Mr. Greenspan said.

He is correct. I agree. The Fed has painted itself into a corner. The policy of near-zero interest rates has addicted the Markets to easy money and cheap credit. Pursuing a rate hike of any significant amount is akin to taking the drugs away from an addict. The volatility seen in the markets is akin to the onset of withdrawal. Not even withdrawal, because the Fed has never removed the drug of low interest rates and easy money; the mere mention of withdrawal is enough to send the markets reeling.

Keeping rates artificially low will continue to fuel a bubble in asset prices, and in all likelihood will lead to eventual severe inflation. Raising rates is highly likely to send the markets into a tailspin, and the economy into another recession. That’s the game the Federal Reserve has locked us into.

Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.

I accept this as a roundabout admission of guilt and implication in the major bubble and bust of the 2000s. Greenspan is admitting that government agencies and government-enforced banking cartels, like the Federal Reserve, have screwed things up. He is admitting that they continue to screw up. No self-respecting establishment economist tells people to buy gold. Establishment economists scoff at buyers of gold as numbskull “gold bugs” wasting their money when they could be buying government bonds instead.

Greenspan is saying that people should buy good, solid, tried-and-true gold, instead of holding rectangular green trading cards with pictures of dead politicians on them. By encouraging people to buy gold in order to avoid government string-pulling of currency, Greenspan is basically repudiating his entire approach of the past 20 years. Apology accepted, Alan.

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