Hey… That rascal, Alan Greenspan, is back in the newspapers. And this time he has something sensible to say:
“The emerging fight over the future of the welfare state, a paradigm without serious political challenge in eight decades, is accentuating the center’s declining. The welfare state has run up against a brick wall of economic reality and fiscal book-keeping. Congress, having enacted increases in entitlements without visible means of funding them, is on the brink of a stalemate…”
Let’s back up to bring Dear Readers fully into the picture. Alan Greenspan came to Washington in the ’70s…to join Gerald Ford’s Council of Economic Advisors. But he arrived with some very unusual baggage. Accompanying him at his swearing in ceremony was none other than Ayn Rand herself, who said that Greenspan was her “man in Washington.”
Greenspan was a member of her “collective” in New York, a group of anarcho-libertarian-randites who got together and argued about how to build a better world order. They were in agreement about the basics — government had to be cut down to size. And governments’ paper money had to be replaced by gold.
Greenspan wrote a famous defense of gold, pointing out that paper money was merely a way of stealing money from the people. You would think that would have disqualified him from taking over the top job at the Fed. After all, America’s central bank was charged with promoting and protecting the value of its paper money. And after 1971, that was no easy mission; the dollar had no real value at all.
But Greenspan was a great schmoozer…and somehow he schmoozed his way into the executive branch…and then into the Fed. He was on the job at the Fed when America’s finances started to spin out of control. As a share of GDP, financial sector debt doubled on his watch. Each time, the economy threatened to come to its senses, Greenspan gave it more credit. In emergency of the recession of 2001, Greenspan cut rates below the level of consumer price inflation — and left them there for years. This was not exactly what you would have expected from a hard-money Randite. Instead, you might have expected him to “pull a Volcker,” protecting the nation’s money…and its financial integrity, even at the cost of his own career. But Greenspan had long since left his friends, his integrity and his beliefs behind (Ayn Rand died on his birthday).
The emergency low rates lasted much longer than the emergency. But 4 years later they had created another emergency — the housing and finance bubble — which blew up in 2007. By then, Alan Greenspan had retired.
Since then we have heard from him from time to time. Usually, his newspaper columns have been little more than weak apologia and lame denials. He claimed, for example, that the bubble in housing was invisible…when we Dear Readers saw it very clearly…and that there was nothing that he could have done to stop it.
But now he has a new theme. And we are wondering whether it is not time to reappraise his career and his character.
He now sees with both eyes. “We face a revolution,” he says. “Arithmetic demands it.”
Whence cometh this revolution? The young have no jobs. The old have no savings. The middle class is becoming more and more desperate. The Wall Street Journal:
More aging Americans are doing something they never would have imagined: turning to family for financial aid. Some are even asking their children for a place to live.
The problem has been building as more Americans 55 and older have lost jobs or run through savings faster than expected.
Thirty-nine percent of adults with parents 65 and older reported giving parents financial aid in the past year, according to a September Pew Research Center survey. Some parents may have trouble acknowledging it: 10% of parents 65 and older reported receiving aid.
The arithmetic that demands a revolution is the arithmetic of a broke welfare state. It makes promises, based on assumptions of growth and prosperity. Now, with neither growth nor prosperity at hand, the politicos wonder how to make good on the promises.
They talk about raising taxes. But no serious observer thinks they could raise enough new money — net — by increasing taxes in order to forestall bankruptcy.
They borrow money too. But the end of that must be approaching too. The average debt level among OECD countries is over 400% of GDP. At a real interest rate of 5%, one dollar of output out of every 5 must be applied to debt service. That is as if every Monday’s work had to be devoted to the dead, rather than the living.
In Europe, all around the periphery, lending rates are edging near the point where lending has to stop. In America, fear of Europe keeps lending rates — for the US government — low. But the more it borrows, the deeper its hole becomes. For the more it owes the less likely it will be to pay it back.
And sooner or later lenders are going to realize that buying debt from the world’s biggest debtor — who continues to borrow more and more money it cannot pay back — is not a great way to preserve capital.
Let’s see. Can’t tax…can’t borrow…then, what can the feds do to pay their bills and honor their commitments? Print money!
Yes, dear reader. That’s what it will probably come to. That is the endgame of paper money schemes. And when the government prints money…as in Zimbabwe or Argentina…or Weimar Germany…all hell breaks loose.
It makes us wonder. What if that were Alan Greenspan’s plan all along? What if he really were Ayn Rand’s man in Washington? What if he intended to bankrupt the US government, by setting up a financial calamity?
Maybe he knew it was inevitable anyway. Maybe he figured that it was easier to go along with it than to fight it…and that it took him where he really wanted to go — towards the collapse of the paper dollar and the Big Government of the USA.
What if he weren’t such a scoundrel after all?
We are giving Alan Greenspan the benefit of the doubt. Perhaps we should reconsider Thomas L. Friedman’s oeuvre too?
Friedman was among those who pushed and applauded the administration of George Armstrong Bush into the war in Iraq. He didn’t mention it at the time, but now he tells us that the reason he backed the war was because he was curious.
“Could we collaborate with the people of Iraq,” he wanted to know, “to change the political trajectory of this pivotal state in the heart of the Arab world and help tilt it and the region onto a democratizing track?”
There are a lot of things we’d like to know too. Such as whether Tom Friedman knows a mixed metaphor when he writes one. Or whether he sustained some form of brain injury as a child that causes him to want to experiment with the lives of millions of people — killing hundreds of thousands in the process. Or that when he talks about a “democratizing track” is he referring to the kind of track that got Adolph Hitler or Benito Mussolini elected? Or is it some kind of track where voters get run around and around until they get worn out and don’t care what S.O.B. gets elected?
Apparently, Friedman saw a 2002 report which said Iraq had a “deficit of freedom, a deficit of knowledge and a deficit of women’s empowerment.” That was enough for him; he was ready start a war as a result.
Well, maybe if we had seen the major issues framed so clearly we would have been more curious too.
And now that the test is completed, Friedman is happy:
“I don’t know if Iraq will make it…but creating this opportunity was an important endeavor….I have nothing but respect for the Americans, Brits and Iraqis who paid the price to make it possible.”
Yes, thanks to you dead people…we’ll get to see what happens when you invade a foreign country, kill a lot of people, spend a lot of money, and then leave. Thanks a lot.
But maybe Friedman has a hidden agenda too. Maybe this jackass thing is just an act. Maybe he too is merely helping the US along to its rendezvous with destiny. All empires die. Maybe Friedman figures it’s inevitable. ‘The sooner the better,’ he may say to himself. Prodding the US into the spending $3 trillion on a pointless war merely helps it towards the tomb.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
There was many a voice among DR readers, as I recall, who cheerled the invasion of Iraq. Where are those voices now? Have they all fallen silent, or are they just too cowardly to admit their mistake borne of bloodlust?
Good read on the history of money and gold:
Now, with neither growth nor prosperity at hand…
The earth, certainly, has never been more properous. The United States as well.
And growth is still with us although smaller.
So stop whining and send me my welfare cheque. Now. And how ’bout a raise?
Thanks for the article. For info on people using voluntary Libertarian tools on similar and other issues, please see http://www.LibertarianInternational.org , the non-partisan Libertarian International Organization.
The best-case scenario for Iraq is that it will be another Russia — an imperfect, corrupt, oil democracy that still holds together long enough so that the real agent of change — a new generation, which takes nine months and 21 years to develop — comes of age in a much more open, pluralistic society. The current Iraqi leaders are holdovers from the old era, just like Vladimir Putin in Russia. They will always be weighed down by the past. But as Putin is discovering — some 21 years after Russia’s democratic awakening began — that new generation thinks differently. I don’t know if Iraq will make it. The odds are really long, but creating this opportunity was an important endeavor, and I have nothing but respect for the Americans, Brits and Iraqis who paid the price to make it possible.
First Greenspan destroyed the economy with his Libertarian nonsense. Now he wants to wreck some mythical “welfare state”.
The theme – and gist – of this article is why I accept my Social Security check every month without the least qualm. I can at least convert it into gold and silver, which is more productive than what the elites can do with it.
FreedMan, you’re on the right track, but it takes at least three generations to completely change the environment. Russia is somewhere in the second Gen about now. American politics has yet to begin its return to sanity, after – guess what! – three generations of Socialist influence.
if it’s mythical, it can’t be wrecked, no?
Besides, Bernanke is in control now.
madess, utter madness, did not this keep the world safe for democracy end with vietnam. there may be a thousand reasons for the iraq invasion. Democracy was not one of them.
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Well Marvin I remember the invasion into Iraq. I was unsure of the connection between the Iraq and 911 but Gen. Colin Powell seemed to believe that Iraq was developing the mythical WMD’s. I still can’t believe that when I was almost 40 I was willing to accept at face value what my government was saying. My apologies to the people of Iraq. This new take on the actions of Greenspan I find very intriguing. He was always a man who never seemed to be willing to come right out and say what he was up to.
George Bush Sr. left Hussein in power as a counter-weight to Iranian influence in the region. Hussein would have been toppled in 1992 if it truly served American interests. Fast forward 7 years to 1999. Hussein is violating the no-fly zone with impunity and Clinton does essentially nothing. From the sidelines, George Jr. sees each provocation by Hussein as an insult to his dad and by extension to the Bush name because his dad had made “the mistake” of leaving Hussein in power after Desert Storm.
And so all along George Jr. knew he was going to take out Hussein, even before 9/11. He didn’t care if there were WMD there or not, and would have dreamed up some other reason to invade even in the absence of 9/11 or unintelligence about WMD.
The whole deal in Iraq never was about geopolitical interests, or any kind of threat to the security of the US. All it really amounted to was a family feud not unlike the Hatfields and the McCoys. The only real difference being the scale and expense of it all. And much as Bonner noted some years ago, now that we have evacuated American forces from Iraq, the final outcome is likely to be just like Algeria in 1959: All out civil war in the formerly occupied country followed by a currency failure, first for France in 1960, then by the United States in 2013.
Rick Santorum is the man to cleaning up the ME and overhaul entitlement programs: Rick Santorum said his top priorities as president would be cutting spending by $5 trillion over five years and overhauling entitlement programs.
Well…maybe the solution is to start a new war…let’s see. How about Iran?
If Greenspan had an ulterior motive I doubt it was for the benefit of mankind.
Welfare or warfare America, your choice.
No wait….let me guess…
Your hate makes you strong!
Rise, Darth Bonner….”
Great article, thanks Bill… It would be very interesting (if possible) to do some research into Greenspan’s personal holdings in gold… If he does or ever did hold gold, it would be revealing of his personal motives, depending on whether the holdings increased or decreased from the mid to late 80s onwards. It certainly seems bizarre that he could come from libertarian roots, to interventionist, now back to libertarian.
Dear Mr. Bonner. Please just ignore Greenspan. Do not given any weight to what he says. Even if he makes sense. Even if you agree with him. He betrayed us once. He betrayed us for a long time. He must now be ignored no matter what he says.
I don’t buy any of that “benefit of the doubt” theory Bill, not that it isn’t a good question to ask from time to time. However if Greenspan or Tom really wanted the best for America, financially or militarily, they would delay war as long as possible and promote gold as much as possible and prevent economic disasters instead of experiment with them so we all learn the hard way that they aren’t good and then start from scratch. We already know war isn’t good in any form except when being under attack from an invading army. Didn’t we already learn that from Vietnam and countless other pointless wars that deliberately were designed to make arms companies rich ? Don’t we already know (Thanks to Ron Paul) that the dollar lost 96% of its value since the Fed was created and ultimately is loosing far more since going off the gold standard. I refuse to give these banker stooges any benefit of the doubt whatsoever. Greenspan is just like any other politician that follow the orders of the banker shareholders, preaching one thing to get in power and doing the opposite after that !
“George Bush Sr. left Hussein in power as a counter-weight to Iranian influence in the region. Hussein would have been toppled in 1992 if it truly served American interests.” – nice thought, but when was the last time politicians GENUINELY did anything “in American interests” ? To sell lots of armaments you need to have a strong enemy on both sides, so you can keep fueling the conflict as long as possible !
Shrub was looking for mythical WMD’s in Iraq.
Greenspan is now looking for the mythical welfare state in America.
America can’t win.
Thank you so much for this very credible insight. It never has made sense to me that he (Greenspan) had somehow come from Ayn Rand’s inner circle because of the actions taken at the Fed during his lengthy tenure. However, it is quite possible that the conclusion may have been drawn (by Ayn and company) shortly after the Nixon adminitration threw out the gold standard that the only way to get back to sanity was to “blow the system up” by letting the new ‘nature’ take its course. If Greenspan could get on the inside and speed things up all the better…brilliant!
It is obvious from many of the comments above that so many of your ‘dear readers’ have not read Atlas Shrugged. Don’t be so quick to minimize the minds of the friends that were a part of that small group of free thinkers. God, I love a good conspiracy theory.
I have often wondered if Greenspan was playing the role of Francisco D’Anconia. If you recall, it was D’Anconia who convinced all the big-wigs to invest in his copper mines only to blow the whole thing up, on purpose. Not sure who would be our Hank Rearden but the big question is (pun intended): Who is John Galt?
Sadly, I think all this is too much to hope for. It would be the greatest ‘sleeper agent’ story in all history. And I don’t for a moment think Greenspan capable of it. Then again, perhaps that is the secret of his ‘success’… Maybe when he dies he’ll let us know.
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
For most investors, it’s weird to think of stocks as their go-to investing option.
The petropoly has bills to pay and setting the price of oil was a simple way to balance their budgets.
Investors don’t seem to care that what's propping up their investments is what will ultimately destroy them: government monetary policy.
For the next decade the energy revolution will be likely confined to the US, displaying the robustness of American entrepreneurship.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
After attending Platt’s oil conference in London I want to relay two important themes you need to know.