The Dark Side of Alan Greenspan
& Steven McIntyre
The Texas Hedge Report
September 28, 2004
Courtesy of www.texashedge.com
Who is Alan Greenspan?
Any student of recent financial history knows that Alan Greenspan
is, above all other things, a political animal. Greenspan,
who has for years been able to lobby Capitol Hill as effectively
as anyone, is frequently spotted at Washington's and New York's
most exclusive cocktail parties. Former colleagues have
spoken about how the chairman always likes to have his finger
on the pulse of every market and can get obsessed with being
kept in the loop on every major issue. While these character
traits may fit his 'information synthesizer' job description,
we suspect they are signs of an egotistical and insecure personality.
We find it discomforting that Greenspan's official biography
(on a US Government website) boasts about his status of honorary
Knight Commander of the British Empire.
A half a century before he became "Sir Alan," Greenspan
was known as an Ayn Rand Libertarian often writing in defense
of the gold standard. In 1966, Greenspan published an essay
and Economic Freedom where he labeled deficit spending as
"simply a scheme for the confiscation of wealth."
He went on to say that "gold stands in the way of this insidious
process. It stands as a protector of property rights. If one
grasps this, one has no difficulty in understanding the statists'
antagonism toward the gold standard."
Shortly after publishing his famous essay, Greenspan's political
career began to take off. Ironically, Greenspan started to move
away from his Libertarian principles about the time he began
working for the Gerald Ford administration. John Ridpath of the
Ayn Rand Institute was once quoted saying "Alan Greenspan,
whatever his rationalization, has abandoned any philosophically
principled stance and compromised himself and what he learned
from Ayn Rand over and over."
Richard Russell of Dow Theory Letters has written, "Alan
Greenspan... of all people knows all about the Federal Reserve
and money and gold. For this reason, I consider him one of the
great 'sell-outs' of today. Not only has Greenspan headed the
Fed but he turned out to be the greatest inflationist in American
It is quite obvious that some time during the 1970s, Greenspan
was seduced by the power of New York and Washington. Greenspan
began to date women such as Kay Bailey Hutchison, Barbara Streisand,
Andrea Mitchell (whom he later married) and other high-profile
celebrities. Ayn Rand was once quoted saying "Oh,
Alan is so brilliant, but he's such a social climber."
Greenspan became addicted to the attention he was receiving from
the highest levels in the White House and on Wall Street.
Selling out his sound money principles in exchange for a lifestyle
of private jets and fancy limousines didn't seem to bother Greenspan.
By the time Greenspan became chairman of the Federal Reserve;
he had fully removed himself from his sound money principles
and turned to running the printing presses at full capacity.
The final straw was broken in 1995 when Greenspan sold out to
Bill Clinton's artificially strong dollar policy in exchange
for an appointment to a third term. Greenspan's sell-out, which
contributed to the bubble in the late 1990s, helped re-elect
President Clinton. Greenspan, in addition to getting a third
term, became a supernatural being to those on Wall Street and
a cult hero to millions around the world. Such godlike status
can be quite addicting, and create a self-fulfilling prophecy
that one's policies are actually working no matter how warped
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 dangerous credit and housing bubble which still exists today.
Most members of congress and the media remain utterly clueless
about the effects of monetary policy. The market rises,
Greenspan is a hero. The market falls, he is a goat. Until
recently the market has mainly been going up drawing cheers of
admiration from the investing public. Apart from Bernie
Sanders (I-VT) and Ron Paul (R-TX), most congressmen fail to
make good use of Greenspan's appearances on Capitol Hill.
Republicans and Democrats will either ask elementary school level
questions or try to get the chairman to endorse (or reject) a
particular policy position. The members of the financial
press will spend their time pondering the Fed's next interest
rate move and trot out all the usual prognosticators for their
predictions. Instead, they should pay more attention to
the concerns of Reps Sanders and Paul and a few other congressmen
who question the behavior and existence of the Federal Reserve.
Regrettably, this ignorance displayed by the media and general
public plays right into Greenspan's hand. With the general
public treating his each and every word as Holy Scripture, he
has been able to conveniently shift the blame for his mistakes
For example, Greenspan often cites budget deficits and energy
prices as reasons why the economy may turn south in the near
future. Since both of those macroeconomic variables are
very important, the press goes along and ignores the real reason
why we find ourselves in today's dire monetary situation
easy credit. When trying to explain job losses, the press
blames corporate CEOs who outsource labor from China rather than
the real culprit - Alan Greenspan and his policy of keeping interest
rates artificially low. Greenspan frequently blames corporate
corruption for the economic slowdown of 2001-2002 while he knows
that such dishonest practices have been going on for years and
continue to go on today. Corporate dishonesty was a symptom
of the disease and not the disease itself. The insidious
disease was cheap and easy credit which spawned spell-binding
asset inflation and earned Greenspan a much deserved moniker
A few very interesting questions have popped up in circles around
Wall Street and Washington over the last few months: If he had
to do it all over again, would Greenspan have gotten out of the
game (with Bob Rubin) at a time when he could've exited with
his reputation unscathed? Does Greenspan realize
that his fate as a "modern day John Law" awaits him
in the history books? Will the White House name a new Fed
Chairman immediately after the election since the law forces
Greenspan to retire after 2005?
Greenspan is primarily concerned with how he will be viewed by
future generations. As far as the long-term health of the
American economy, well, this is a trivial matter. We suspect
Greenspan has been plotting for months about how to find the
best way to abandon ship without scaring the markets or hurting
his reputation. This may be the reason why he has repeatedly
warned about high energy prices, the viability of social security,
protectionism and spiraling fiscal deficits. If any one
of these forces takes hold of the American economy over the next
few months, Greenspan will try to slip out with his reputation
unharmed. If the market suddenly shoots higher, the chairman
may be able to get out in a manner similar to Bob Rubin.
We also would not be surprised if Greenspan suddenly decides
to resign due to 'health problems'. These rumors have hit
trading floors over the last few months and the reaction hasn't
been too devastating. Whatever the case may be, we advise
readers to ignore the rate-guessing game and pay more attention
to Greenspan's actions as well as any signs of a deteriorating
relationship with the administration.
September 27, 2004
Todd Stein & Steven McIntyre
Texas Hedge Report
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Todd Stein &
Steven McIntyre are internationally known analysts and editors
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