That old fraud, Greenspan, is now running around the planet, lying about nearly everything. As if this is a change in his standard operations. His latest attempt at trying to undo or deflect critics who noticed that he destroyed the world’s economies, is to deny he had anything to do with the housing bubble. Instead, he blames it all on a ‘savings glut’. This was the magical time when our trade rivals held US dollars so their own currencies would be weaker. This, in turn, allowed us to borrow merrily and no one encouraged this frenzy of borrowing more than that old crook, Greenspan.
First, we must look at an old posting I did way back exactly 3 years ago:
The USA sucks up around 80% of all possible international funds of various sorts. This is to pay for the half trillion in government red ink and near trillion in trade deficits. In return, we printed money at an accelerated rate and now inflation is beginning to rage across the planet. Interest rates are shooting up and investment funds are vaporizing….
American consumer credit depends very heavily on foreign money pouring in. Interest rates on houses were ridiculously cheap and the mortgages were bundled and resold to hedge funds and overseas investors seeking stable shelter for their money, little understanding how this particular shelter has a very leaky roof.
Namely, when the dominos start to fall in America, people will cease paying for their grossly over inflated in value homes and abandon them, this has happened in the past, can happen at any time. It is no coincidence that all gold rushes in history coincide with world wide depressions. Such as the all famous on in California, the banking systems of the world collapsed in 1848 and the rush was in 1849. Ditto the Alaskan rush.
Ah, wasn’t it just yesterday, the IMF had the chutzpah to say, ‘NO ONE KNEW this would happen!’ Yet, here it is, online, easy to find. I googled the right words and got my own webpage. I feel, at this point, since I was obviously 100% correct back in 2006 and explained the forces at work correctly, someone should call me on the phone and ask me to head the IMF….HAHAHA. I don’t know if they could stand hearing me laugh every day in between snarling, ‘We will lend them money only after they arrest the bankers.’
The foreign money has stopped flowing in. Uneven trade has crashed. All systems are dumping whatever junk they can dump. And old Greenspan should be either arrested or dumped overboard somewhere along the mid-Atlantic trough. If we read my entire article, it becomes clear, I wasn’t just joking around and making predictions out of thin air. Everything I wrote was based on hard statistical analysis.
I used all the same statistics available to the IMF and Greenspan. Yet, they were utterly unable to see what would happen next while I was able to anticipate everything including the quick bout of hyper-inflation we had from 2007-mid-2008.
Greenspan’s editorial is in the Wall Street Journal so I can’t quote from it so we will use the Reuters story. I will comment in red throughout this interview:
The U.S. Federal Reserve’s “easy money” policies during the first part of this decade didn’t cause the housing bubble, former Chairman Alan Greenspan wrote in the Wall Street Journal.
A surge in growth in China and other emerging markets led to an excess of savings that pushed global long-term interest rates down between early 2000 and 2005, Greenspan wrote in an article. That caused mortgage rates and the benchmark Fed-funds rate to diverge after moving “in lockstep” from 1971 to 2002, he said…
Blame the Chinese! HAHAHA. I will note that neither Greenspan nor the interviewers of anyone mentions Japan. I am enraged that Japan constantly gets to slip the noose here. The entire battle of the summer of 2007 between Japan and China was over Japan joining with the EU and US to attack China for doing exactly what Japan was doing!
This interview is full of lies, of course. Greenspan is a habitual liar which is why he was so popular while he destroyed our entire financial systems. Every time he makes an assertion, there was no one there to haul out charts and graphs and prove him wrong! I am puzzled by this. We know how to make and use graphs and charts.
Much of Wall Street’s daily diet is in the form of graphs and charts. The Fed, itself, produces tons of graphs and charts! Yet, this guy is allowed to state facts that are easily disputed and no one pops up with the contrary evidence.
“Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have prevented the housing bubble,” Greenspan said.
See how he operates? If the Fed tightened money, there would still be a housing bubble due to mysterious, outside forces! What he is saying is simple: the Fed can’t regulate ANYTHING, anymore. It is but a little newspaper boat bobbing on this sea of global savings!
As I recall, the entire and only excuse for creating the Fed was so we would NOT be a newspaper boat, bobbing on global waters!
The Fed cut its target rate for overnight lending between banks to 1 percent in June 2003 from 6.5 percent in December 2000, and left it unchanged for the next year. Between June 2004 and June 2006, it raised the rate in quarter-point moves to 5.25 percent.
Foreign demand for U.S. Treasuries helped keep long-term debt yields from rising as the Fed started to raise rates in 2004, leading Greenspan in 2005 to call the anomaly a “conundrum.” Foreign ownership of U.S. government debt doubled between 2000 and 2005 to $2.03 trillion, Treasury data show….
US military spending went through the roof. The Federal Reserve enabled this via two things: super-low interest rates coupled with peddling our debts to our most dangerous trade rivals, mainly, China and Japan. Both bought a total of $1.3 trillion in US IOUs.
“The result was a surge in growth in China and a large number of other emerging-market economies that led to an excess of global intended savings relative to intended capital investment,” he said. That “propelled global long-term interest rates progressively lower.”
Note how he has no mention of either the Japanese ZIRP system that was already old by 2003 as well as no mention of the Japanese carry trade which was the true vehicle of the flood of global real estate lending. Even as Greenspan lowered rates, the differential between, say, 3% Fed rates and B of J rates of 0.2% was immense. Even our 1% rate was still twice as great as the Japanese rates!
It matters “a great deal” to understand what caused the bubble in the real-estate market, he said.
It certainly pays to click on my link from last year to see a slightly more honest accounting of this whole business of surges and bubbles! The simple graph above shows how the vacillations in a rate can create bubbles. We have mega-bubbles, of course. Since the Reagan era, when rates hit their historic highs of the last 100 years, rates did drop.
But our debts began this relentless climb to unsustainable levels. The graph above is for a short, 7 year period. Look at how rates rose and fell, rapidly. When rates triple and then suddenly, deflate by even more, this is unstable and causes all sorts of mischief.
For Sound Money » Antal Fekete He often discusses how dropping interest rates actually cause serious collapses in the economic health of capitalist systems. The only good thing that comes from dropping rates is, consumers can splurge. In the last 8 years, consumers have gone so deep into debt, interest rates on credit cards have risen to obscene, usurious levels. So, the last gasp was to gain access to cheap loans via housing.
By putting debts onto existing as well as new housing, people could splurge a while longer. The Fed was very anxious, after the Dot Com bubble broke, to get some sort of business going, so the Fed dropped rates very hard and fast, this boomeranged against our industries who use various hedges to protect against price instability.
This is part of the Derivatives Beast, of course, which grew to monstrous size while the Fed fed it via wild rate swings. While the Japanese carry trade was flooding the US lending markets, the Fed joined in. For all the bankers needed, was a good spread between the costs of borrowing from Japan or the Fed, and how much they charged for mortgage loans.
Since they sold off these immediately to the quasi-governmental Freddie Mac and Fannie Mae holdings, the real cream was in fees for making these loans.
“If it is monetary policy that is at fault, then that can be corrected in the future, at least in principle,” Greenspan wrote. “If however, we are dealing with global forces beyond the control of domestic monetary policy makers, as I strongly suspect is the case, then we are facing a broader issue.”…
In other words, the problem is free trade, isn’t it? Eh? And the other central banks using their FOREX reserves to control currency values! This means, we have to fix our international banking and trade relationships! HAHAHA. That is too funny.
Policy makers should avoid “heavy regulation” in trying to navigate out of this financial crisis, Greenspan said.
The solutions are “higher capital requirements and a wider prosecution of fraud, not increased micromanagement by government entities,” he said. Governments need to “ensure responsible risk management on the part of financial institutions while encouraging them to continue taking the risks necessary and inherent in any successful market economy.”
This is even funnier! Who, pray tell, raised both interest rates and reserve ratios on its banks in 2007? It was not Japan. It was not the US nor Europe. It was China! To kill the burst of hyperinflation that began in 2006 and peaked in the summer of 2008, China was very aggressive. The US, on the other hand, kept dropping rates, no matter how bad this burst of inflation raged. Ditto, Japan.
‘Taking on risk’ is code for ‘running away from risk’. They passed risk around like a hot potato. This risk was finally parked inside of the innards of the Derivatives Beast. I gave this thing a name because it constantly reminds us that the monster is evil and it has a huge appetite and it is now devouring all financial systems.
Now, for a look at a graph that proves Greenspan is a liar and I am correct in my analysis:
Note how the red line, which is the Fed rates, sometimes crosses the blue lines which is the 30 year standard mortgage rates. When the red lines cross the blue, banks stop giving out real estate loans. For example, in 1979, I bought a brownstone in Park Slope, NYC. I could not get either a mortgage nor a home improvement loan. I borrowed from the seller. And paid more than 9% interest. Paid off the loan by 1984.
HOUSING WAS VERY CHEAP. The principal was very little. Starting in 1982, the gap between the red line and the blue line is nearly continuous. This coincides with an immense and very long housing boom that rapidly turned into a toxic bubble by 2002. This is because the spread between the Fed rate and the mortgage rate was more than 5 percentages. This great a spread is VERY RARE. It happened briefly in 1993-1994. And of course, from 2002-2006. The other time was a very short spurt in 1975. But that was during a rise in interest rates due to inflation.
So, lending for houses didn’t shoot up much since bankers were visibly worried about carrying mortgages that would fall behind the rate of inflation. But when rates were dropping, they got very bold and lent to anyone and everyone, especially, since the loans didn’t stay on their books. Instead, they turned these into Treasuries!
Below is another story I did about Greenspan lying about his scholastic record:
Greenspan’s PhD research turns out to be nothing. He is probably a fraud. Surprised, anyone? And from the Ninja Economist, more ‘scary charts.’ Just like yesterday, the day before and the last 100 days before that, almost all the economic news is ‘bad news.’ So world stock markets resume their fall. What a surprise. Again. Sub prime losses are now over $230 billion and climbing. Far from bottom, there is more to come as we knew way back last year. More American consumers are falling behind their many debt payments as job losses accelerate. This was easily foreseen by anyone with half a brain, of course. Not that the people running things have brains. Note that Greenspan was too stupid to write a thesis for his business Phd. Not that these things are worth the paper they are printed on. Like the dollar.
Greenspan, who left the Fed in 2006 but is still consulted as a genius, might find a metallic exoskeleton exceptionally comforting come May, when the University of Texas Press publishes an unflattering book by Robert Auerbach entitled Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank.
Auerbach, a veteran Fed basher, portrays Greenspan as a real-life Professor Marvel — who, through double-talk or “garblement,” transformed himself into a mighty economic wizard à la Oz. Auerbach strongly implies that Greenspan’s 1977 Ph.D. from New York University was obtained in a few months with little more rigor than a matchbook-cover art degree and that Greenspan has kept his Ph.D. thesis secret in order to protect his vaunted academic reputation.
“Normally,” writes Auerbach, “a Ph.D. dissertation in a field such as economics must be in a form sophisticated enough to be usable in research, must make a contribution to the existing body of knowledge, and must be original, unpublished work. When approved, the Ph.D. candidate is normally required to supply a bound copy of the dissertation, which remains in the university’s library and is available for future researchers to consult.”
Auerbach, who has a Ph.D. in economics from the University of Chicago (Nobel laureate Milton Friedman was his thesis adviser), kept requesting access to the papers until NYU’s provost, David McLaughlin, finally admitted in August 2005 that, “I can tell you that it was the practice of the business school, during the 1970s, not to deposit dissertations with the library. Thus, a copy of Greenspan’s dissertation is not in the Bobst Library. We suggest that you contact Greenspan directly in order to obtain a copy of his dissertation.”
Writes Auerbach: “Evidently, he wanted me to believe that NYU business Ph.D.s just took their dissertations home and put them in a drawer.”
HAHAHA. So much for Greenspan’s veritas. I suppose he got his degree due to his ‘life experience’. Back then, it was being part of the Nixon ‘Wage/Price Freeze’ team? HAHAHA. He should have gotten his degree from Moscow University for Economic Research. As the US misspent money on a fruitless war with Vietnam and the Cold War, our economic condition evaporated. As always during wars, this spending caused inflation to take off. So, belatedly, our government went from ‘guns & butter’ into ‘rationing’. The reason governments ration during wars is to prevent inflation, after all. But we did our rationing after losing the Vietnam War. I suppose Greenspan, learning about economic matters in this school of dementia, learned some interesting lessons about how one can use war to boost the money supply.
From 2 years ago, is this graph I did, showing the history of our boom/crash cycles. The 1% regime by Greenspan was the ONLY time in the last half a century, that the T bills fell below the 2% level. And now, it is there, again, worse than ever.
What has irritated me for many years now is the belief that spending is our economy. This is false. Only after we deduct our trade deficit, can we see if we ‘grew’ an economy and the answer is a resounding ‘NO’. We are not growing anything except an ocean of red ink. Consumer spending is driving America into a very deep hole. We should NOT be encouraging spending, we should be encouraging SAVINGS. Debt has ballooned and savings has collapsed. Ergo, we need to rebalance them with each other.
This ‘Golden Mean’ is true conservativism and I am rather conservative. The sober mean is important because it is all about balance. When the rich get too rich while the poor languish, this is not the Golden Mean. This is people with gold being mean. Great differences between rich and poor leads to tyranny, revolution and coups. The great middle class leads to stability and democracy. As our nation follows policies that are extremist leading to extreme ups and downs in our finances, extreme solutions to financial problems caused by extremely wild investments, extreme wealth being pampered and cared for while many millions go without health insurance or even housing, this extremism is not good for any democracy and we see tyranny already raising its head as the millionaires in Congress and the billionaires in the Senate and the multimillionaire govenors all join hands in making extremist policies that make them all richer along with the Secretaries of the Federal government and the multi-multi-millionaire/billionaire President and Vice President richer…this can end with a historic explosion at home when these traitors hand us over to foreign powers who hold the mountain of debts rung up by the super-rich rulers.
When there is a hole in the bucket, a rip in the balloon, no matter how hard one tries to fill it up again, everything dribbles out. Every other day, the stock market swings wildly between extremes. Today, it went up the same degree it went down the day before. Talk about instability! And it rises on rumors and falls on facts and eventually, hard facts will prevail. I always reacall, the happiest day on Wall Street before the Great Depression was in mid-September after it yo-yo-ed up and down for three months.
It is pure wishful thinking that inflation will magically vanish in six months. And the capacity of the Chinese to believe us when we set super-low rates is not where it was when they were trying to penetrate our markets in 2002. They have penetrated and poked a hole right through the other side already.
I am constantly amazed, how the creators of this gigantic mess, constantly harp on two themes: no one knew this would happen and they were not responsible. This childish game must be put to an end. But I don’t run the Bilderberg meetings. I don’t run Congress. I don’t run any central bank, nor run the IMF.
But if any of these organizations and a hosts of others, cannot get a grip on things, they should do us all a favor and go away. And leave things for saner, smarter people to clean up. Instead, they still insist on running and ruining things. And so far, no one has said a thing about how we can stop the Derivatives Beast. Of course, it will stop, once it eats all faux funny money.
But the entire excuse for having central banks was to prevent this very thing from happening, in the first place! Their job, their duty, was to prevent, not enable, bubbles. Greenspan could see the spread between Fed rates and mortgages as easily as I. Understanding the import of this was equally easy.
But for politcal reasons, in the hopes of dumping the last of the Great Depression rules and regulations drove Greenspan to ignore reality and push, full steam ahead. After all, in 2007, he was the one who said, we should all buy Alt-A loans and make variable rate deals!
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