Greenspan is gone in nine months
Todd Stein & Steven McIntyre
Greenspan's solution to every economic crisis has been to print more money - often by cutting rates which has the effect of increasing credit. The Fed cut interest rates in 1998 partly due to the blowup of hedge fund Long Term Capital Management. When fears of Y2K hit the American populace in 1999, the chairman put his foot on the monetary pedal and increased liquidity to extreme levels. A significant amount of that newly created money found its way into internet and other technology stocks fueling the greatest stock market bubble in history. As the NASDAQ bubble deflated in 2000-2002, Greenspan should have let the detoxification process take its course. Instead, he poured Americans another drink and cut rates again to the lowest levels since the Eisenhower administration. Such a low rate monetary policy has spawned a hazardous credit and housing bubble which still exists today.
It will be
interesting to see if Greenspan spends his last several months
in office trying to keep the party going, so that he goes out
on top. Then, when he leaves and Ben "Printing Press"
Bernanke (or someone else) takes over, the house of cards will
tumble. We expect the Republicans to take major heat in the 2006
or 2008 elections for appointing Greenspan's successor, whoever
it is. (Remember how former SEC chief Harvey Pitt took the blame
for corporate shenanigans that occurred years before he came
into office?) Furthermore, we expect confidence in the U.S. Dollar,
the U.S. equity markets and the U.S. fixed income markets to
plunge. This should be a great time to own gold and silver.