Posted on 07/21/2002 2:57:07 PM PDT by shrinkermd
I don't agree. Firstoff, monetary policy is the Fed's sole responsibility, so what else would you expect from Greenspan? Second, money supply was expanded in late 1999 and early 2000 due to Y2K concerns, then corrected, and that is all.
The Fed and the military are almost alone and unique in their selfless and valuable services to this country. Why is this not obvious to all? Why do some try to bring Greenspan down? Why don't you read what he writes, then judge him? I have no empathy whatever for this Greenspan bashing. I have been involved in financial markets since the mid-1960's and have watched the Fed all that time. I thought no one could match Volcker's performance in the late 1970's and early 1980's. I was wrong. Greenspan has, and then some. When you say your prayers at night, thank God for Greenspan, for it is in no small measure his and the Fed's responsible actions that have given us our prosperity. Greenspan is serious, an adult, he's responsible and he cares. Not least, he is a certified genius.
If you must vent your spleen, vent it against a culture that has allowed amoral adolescent sociopaths to rise in industry to the level of CEO and, abetted by other like-minded sociopaths educated in our "finest" universities, commit fraud upon the investment community to assuage their greed. That lack of integrity is a first here in the U.S. but it is commonplace in Latin America. Former integrity is the very basis for the rivers of investment dollars from foreign sources over the past several decades and that river now threatens to become a trickle. The effect of this upon your personal standard of living should give you pause for thought, because it is or will be real enough whether or not you understand it.
Get Smart, shrink. Do your homework.
HOUSE FINANCIAL SERVICES COMMITTEE
Wednesday, July 17, 2002
PAUL: Welcome, Chairman Greenspan. I've listened carefully to your testimony but I get the sense I may be listening to the Chairman of the Board of Central Economic planning rather than the chairman of a board that has been entrusted with protecting the value of the dollar.
Well, I like Ron Paul, but he gets it wrong right out of the chute. Here's Greenspan's prepared remarks:
As you know, the Secretary of the Treasury speaks for our government on exchange rate policy. But, given the recent intense interest in the future course of the dollar, I would like to raise a technical issue and a flag of caution regarding those forecasts--or, for that matter, any forecast of exchange rates. There may be more forecasting of exchange rates, with less success, than almost any other economic variable.
The reason that it is so difficult is that an exchange rate is a very complex price that balances, on the one hand, the demand for, for example, dollars stemming from the demand for dollar investments and for U.S. exports against, on the other hand, the demand for foreign currencies by U.S. investors desiring to acquire foreign assets and by U.S. importers of foreign goods and services. Hence, exchange-rate movements depend on shifting perceptions of the relative returns from investing in different countries and on the myriad influences on relative tendencies to import and export. The net effect of these factors over any future time period is extraordinarily difficult to assess in advance. Although measures such as real interest rate differentials, differential rates of productivity gains, and chronic external deficits are often employed to explain exchange rate behavior, none has been found to be consistently useful in forecasting exchange rates even over substantial periods of one or two years.
Now I can personally attest to this. I managed currency risk for major corporations for 20+ years. Again, please read Greenspan's remarks before condemning him.
And who the Hell is Jay Taylor?
Correct, because commodity prices were low, the newly created dollars went to buy "financial assets". But the root of the problem was a massive expansion of the money supply, not "what" the new dollars went into. If not the financial markets, then those dollars would have gone into commodities, causing extreme price inflation.
As answered most execellently by shrinkermd: Phaedrus you can correct me if I am wrong, but I believe he first made the "irrational exuberance" comment in 1996 when the DJI was 6-7000. He then continued to stoke the money supply until 1999...
So if he was so concerned, as you claim, why did he continue to create massive amounts of new dollars, knowing they were going straight into the financial markets. It was like throwing gasoline on a raging fire. Obviously, you have not done your homework.
So if he was so concerned, as you claim, why did he continue to create massive amounts of new dollars, knowing they were going straight into the financial markets. It was like throwing gasoline on a raging fire.
There has been no showing that Greenspan "stoked" money supply from 1996 to 1999, when the money supply did indeed spike up, then down, in response to concerns about Y2K. If you want to know what REALLY happened during this period and the reasons therefor, go back and read his Humphrey-Hawkins testimony to Congress which occurs every 6 months. It's published. You are not permitted to creatively rewrite history to fit your conspiracy theories.
You asked who Jay Taylor is. He is the Editor of "Taylor Hard Asset Advisor."
In any event, your post ignores the thrust of my post which was to show one example of Greenspan's disingenuity. There are many others.
Here is the evidence:
M3 (in Trillions):
1/96: 4.6
1/97: 5.0
1/98: 5.5
1/99: 6.1
1/00: 6.6
A 43% increase in 4 years!
Of course I do. Here's Greenspan, for the second time, indicating that the management of the dollar is the Treasury's responsibility:
...the Secretary of the Treasury speaks for our government on exchange rate policy.
Did you miss this the first time around?
...Greenspan's remarks, taken in toto, affirm Paul's comments...
No, they do not. Ron Paul does, however, do a great deal of stumbling around so what is to be confirmed is in doubt.
You suggest I read the testimony before coming to conclusions. I did and suggest you do Here.
My Greenspan citations came from his published testimony. Are you paying attention?
I also heard the comments live. Greenspan's remarks do, indeed, sound like those I'd expect from a central economic planner.
I'm not prepared to take your word for this.
You asked who Jay Taylor is. He is the Editor of "Taylor Hard Asset Advisor."
He is just another conspiracy theorist.
In any event, your post ignores the thrust of my post which was to show one example of Greenspan's disingenuity. There are many others.
You have shown no such thing and I completely discount the blatherings of Jay Taylor. "The fish rots from the head down"? Oh, Please.
As to your #27, here's The Chart on M3 money supply growth. And here's The Chart on GDP growth. Well, My Goodness! They look quite similar, don't they? Does that suggest to you that perhaps money supply growth must support growth in GDP? It should. That's point 1. Point 2 is that the danger in excessive (note that word carefully) money supply growth is inflation. Do you see inflation hiding under the bed or lurking around the corner? If you do, you are virtually alone. Jude Wanniski is currently making a big deal about deflation.
So, which is it?
Ron Paul, Jay Taylor and Jude Wanniski just want to score points off the legitimately great man, Greenspan.
Inflation: money supply (MZM) growing faster than economy is growing.
Deflation: MZM growing slower than the economy is growing.
Since those who control money benefit from actions that lead to inflation with a fiat currency, that will always be the natural state. Deflation will only occur, it seems to me, if the credit bubble collapses. This will only happen when the alternative (extend the credit bubble further) is deemed too inflationary and threatens the currency itself.
When I first read your response, I could not figure out how you thought a small segment of what Greenspan said about O’Neill’s responsibility for exchange rates could negate Paul’s comment that Greenspan’s remarks, in toto, resembled the comments of a central economic planner rather than “protector” of the dollar. While I suspected (you have now confirmed) that you equated “protect the dollar” as being equivalent to the narrower concept “exchange value of the dollar” it still did not address Ron Paul’s primary allegation about Greenspan's testimony sounding like that of a Central Economic Planner (which it does). Do you deny that Greenspan is responsible for protecting the value of the dollar?
As to your #27, here's The Chart on M3 money supply growth. And here's The Chart on GDP growth. Well, My Goodness! They look quite similar, don't they? Does that suggest to you that perhaps money supply growth must support growth in GDP? It should.
No, it doesn’t and shouldn't. Based on your logic, there was no hyperinflation in Hungary in 1923. Surely, you see the fallacy in such logic, don't you?
Do you see inflation hiding under the bed or lurking around the corner? If you do, you are virtually alone. Jude Wanniski is currently making a big deal about deflation. So, which is it?
Yes, I see evidence of inflation. We are watching about 10 years of asset inflation deflate right now. Soon we will have to come to grips with the even bigger problem: the credit bubble. We will have two choices. (1). Keep it going by keeping the bubble inflated, thereby putting off (and worsening) the day of reckoning into the future or (2). Let it deflate now.
Since you probably won’t take my word for it, here’s how Ludwig von Mises puts it:
“The credit expansion boom is built on the sands of banknotes and deposits. It must collapse….There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
I find Greenspan to be among the most disingenuous and shameful politicians (yes, politicians) we have. He acts counter to what he has written and claims to still believe. When a friend of mine (a true believer like you appear to be) asked him, point blank, why he didn't try to implement the principles he has so eloquently written about and says he still believes, Greenspan gave the most disingenuous response of all, "Nobody would listen to me."
Yes, I do. No individual, institution or government can successfully "protect" the value of its freely convertible currency. It is not possible. I think Greenspan knows this, and he alludes to it in his testimony on the impossibility of forecasting exchange rates. Many governments have tried but they have always failed. I do think, though, that he is sensitive to the strength of the Dollar, its impact on our economy, and he appreciates the direct link between domestic inflation and the external value of the currency, so to that extent I agree. As he states, though, it is not his primary responsibility.
No, [money supply growth] doesn’t [relate to GDP growth] and shouldn't. Based on your logic, there was no hyperinflation in Hungary in 1923. Surely, you see the fallacy in such logic, don't you?
I don't see the fallacy and I am not knowledgeable about the 1923 hyperinflation in Hungary. I would think it a virtual impossibility for GDP to grow without growth in the money supply. Money lubricates the economic machinery. I think this is obvious.
Yes, I see evidence of inflation. We are watching about 10 years of asset inflation deflate right now. Soon we will have to come to grips with the even bigger problem: the credit bubble. We will have two choices. (1). Keep it going by keeping the bubble inflated, thereby putting off (and worsening) the day of reckoning into the future or (2). Let it deflate now.
Inflation is an increase in price levels without a corresponding increase in productivity (value). It is a monetary phenomenon and we don't see it, today, as a simple matter of fact.
...here’s how Ludwig von Mises puts it:
“The credit expansion boom is built on the sands of banknotes and deposits. It must collapse….There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
Fiat money and credit have formed the basis for the real growth in our economy for many decades. Without both, nothing like our current level of prosperity would have been possible. But, yes, I agree that fiat money is dangerous. I also think that Greenspan is acutely aware of this. As a matter of simple practicality, currency freely convertible into gold would not work. There is not enough of it.
I find Greenspan to be among the most disingenuous and shameful politicians (yes, politicians) we have. He acts counter to what he has written and claims to still believe. When a friend of mine (a true believer like you appear to be) asked him, point blank, why he didn't try to implement the principles he has so eloquently written about and says he still believes, Greenspan gave the most disingenuous response of all, "Nobody would listen to me."
I have watched Greenspan and the Fed masterfully guide us through treacherous financial waters these past 10+ years, beginning with the October 1987 stock market crash, and I absolutely do not agree with you assessment. I have also, on several occassions, watched Greenspan respond to the "questions" (read "statements") raised by the denizens of Congress in the Q & A sessions at the back end of his Humphrey-Hawkins testimony, and it is the folks in Congress who act like a pack of jackels, who only want to promote their pet economic theories and make themselves "look good" to their constituency at expense of Greenspan. Many or most of them are economic ignoramuses. Greenspan had thus better be somewhat adept at politics involved or he would be eaten alive. No, I do not agree with your assessment.
I don't see the fallacy [in using the increase in GDP as evidence that there has not been excessive money created]
You don’t see that it is a self fulfilling prophesy that if you double the money supply, the GDP (in inflated $s) will (approx) double and that has nothing to do with economic growth?
I would think it a virtual impossibility for GDP to grow without growth in the money supply. Money lubricates the economic machinery. I think this is obvious.
This is the primary source of your (commonly held) misunderstanding. Once we lay these other issues to rest, we should return to this subject.
Inflation is an increase in price levels without a corresponding increase in productivity (value). It is a monetary phenomenon and we don't see it, today, as a simple matter of fact.
Your definition, while not 100% accurate is close enough. What you have to understand is if you create money and distribute it to the poor, the price of bread and butter goes up, If you create money and distribute it to the rich, the prices of yachts and stocks go up.
As a matter of simple practicality, currency freely convertible into gold would not work. There is not enough of it.
Wrong. And besides, “dollars” not redeemable FROM THE ISSUER in something standard (or where the issuer isn't otherwise constrained) is theft.
I have watched Greenspan and the Fed masterfully guide us through treacherous financial waters these past 10+ years, beginning with the October 1987 stock market crash, and I absolutely do not agree with you assessment.
Greenspan is a lying, conniving, shameless self-promoter with zero commitment to ideals he professes to believe in. I have written a commentary on his 1/25/01 demonstrably fabricated testimony to provide a political basis for the Bush tax cut. Unfortunately, Sarbanes, Byrd, and Hollings while skirting close to exposing the nonsense of his testimony did not fully understand how to do so. Sarbanes got so close to exposing the Maestro that he had to say, “I understand your confusion Senator. If you contact my office I’ll address that with you.” The honest response would have been, “You caught me redhanded Senator, I’ve been lying through my teeth!”
BTW, my write-up will make it clear to any reasonably intelligent reader that Greenspan was lying. I'll post it on request.
I don't. You do.
You don’t see that it is a self fulfilling prophesy ...
Right, I don't
This is the primary source of your (commonly held) misunderstanding.
Sorry but you're the one who's confused.
What you have to understand ...
Wrong. You're still confused.
Wrong.
Wrong, yourself.
Greenspan is a lying, conniving ... and so on.
He's not, and you're not qualified to judge. Kindly address your unreasonable tirades to someone else who might be interested. You're wasting my time.
So basically, deflation is the increasing value of the dollar, and inflation is the decreasing value of the dollar.
Using this definition how can anyone describe the last 4 years as deflationary. The dollar has lost over 10% of its purchasing power during this period.
you're too far into conspiracy mode when you claim that those who control the money supply will only allow inflation because it benefits them.
Conspiracies require that people act collusively. Nothing I have said requires collusive behavior. Those who have the capability of creating money without work or effort and distributing it at interest to entities of their choice always choose to do so. That is inflation. Anyone who has had the privilege of creating and distributing money has always abused it. Think about it. If you could create liabilities against yourself and others were obligated by government edict to accept your liabilities as money, you, too, would inflate.
banks are doing great right now because of deflation
Not quite. banks benefit from declining interest rates. It has nothing to do with absolute value of rates. Banks benefit from a decline in rates from 12% to 10%; they are hurt by a rise from 2% to 4%. That’s a function of the fact that they finance long-term assets with short term liabilities. It has nothing to do with inflation/deflation or creditor/debtor
deflation always favors creditors at the expense of debtors!
Quite true. Banks are creditors with respect to borrowers and unsecured debtors to an approximately offsetting group of so-called “depositors.”
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