Winter of Discontent

Former Federal Reserve Chairman Alan Greenspan resurfaced this week.  We couldn’t recall the last time we’d heard from him.  But, alas, the old fellow’s in desolate despair.

 

Alan-GreenspanUnexpectedly rising from the crypt: Alan Greenspan

Photo credit: AP

 

On Tuesday, for instance, he told Bloomberg he hasn’t been optimistic for “quite a while.”  Obviously, this is in contrast to the perennial Goldilocks attitude he had during the 1990s.  So what is it that has the Maestro playing a low dirge?

China, the dollar, Dodd-Frank, and associated unknowns are all part of his negative outlook.  But the long winter of his discontent is something else.  Greenspan said he “won’t be [optimistic] until we can resolve entitlement programs.”

Nobody wants to touch [entitlements].  But it is gradually crowding out capital investment and that is crowding out productivity and that is crowding out the standards of living,” said Greenspan.

Indeed, funding entitlement programs is becoming more burdensome by the year.  As a greater percentage of the economy’s GDP goes toward entitlement programs, a lesser percentage goes towards capital investment.  The effect of this negative feedback loop, as Greenspan infers, is quite simple.

 

ramirez-entitlement-cartoonAn enticing lure….

Cartoon by Michael Ramirez

 

Less capital investment leads to lower productivity.  Lower productivity leads to slower GDP growth.  Slower GDP growth leads to an economy that can’t keep pace with entitlement programs.  Thus, an even smaller percentage of GDP is, in turn, available for capital investment…to propel future growth.  And so on, and so forth.

 

1-SR-fed-spending-numbers-2012-p8-1-chart-8_HIGHRESA 2012 forecast of entitlement spending by the Heritage Foundation. This seems not exactly sustainable – click to enlarge.

 

What Drives Economic Growth?

Certainly, this is a basic insight.  But perhaps Greenspan is on to something much larger than just the issue of entitlement programs.  From what we can tell he’s getting at the question of economic growth.  Namely, what drives it?

Based on Greenspan’s example of entitlement programs, and their effect of crowding out capital investment, productivity, and standards of living, it seems he’s asserting that savings and production drive economic growth.

This, no doubt, is an important distinction.  For it goes contrary to the mainstream Keynesian economic thought of the day which asserts spending and consumption drive economic growth. Hence, the main purpose of today’s economic policies is to increase spending and consumption to the detriment of savings and production.

 

2-Production structureHow the economy grows. Lower left corner: an outline of the economy’s structure of production in the form of a “Hayekian triangle”; clockwise from the upper left corner: the process of widening and lengthening of the production structure and the growth in output it creates over time, as savings and investment increase (for a more detailed explanation of the concepts involved see our previous brief article “The Production Structure”) – click to enlarge.

 

To be clear, this was also the approach to monetary policy that Greenspan executed when he was Fed Chairman.  Between 1987 and 2006, while at the command of the nation’s monetary levers, Greenspan implemented these policies of promoting mass consumption.

Moreover, Greenspan’s dirty fingerprints are all over today’s global economic problems.  For it were Greenspan’s policies of mass consumption that accelerated globalization and a lopsided trade imbalance with China and others.  Practically all the malinvestments, bubbles and busts across the planet that are presently in various stages of reckoning can be traced back to the man.

We doubt Greenspan will ever take responsibility for the effects of his actions. But we do know that he has full knowledge of his errors.  For while Bernanke and Yellen are true believers in their craft, Greenspan knows central banking is filthy hogwash.  In particular, long before he became the Maestro, there was a time when Greenspan was openly opposed to state intervention.

 

maestroThe publication of this book was like the ringing of a bell. It heralded the end of the great boom and it was the last time Greenspan was put on a pedestal by a book author.

 

Alan Greenspan’s Pickled Economy

Greenspan, if you didn’t know, once stood firmly behind the gold standard.  He even wrote one of its better defenses.  In his essay Gold and Economic Freedom, published in 1966, Greenspan came to the following conclusion.

 

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.  There is no safe store of value.  If there were, the government would have to make its holding illegal, as was done in the case of gold.  If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods.  The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

“This is the shabby secret of the welfare statists’ tirades against gold.  Deficit spending is simply a scheme for the confiscation of wealth.  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.” 

 

gold-coinsGold: the money of the free market, and guarantor of economic freedom – and consequently hated by etatistes far and wide. Alan Greenspan was well aware of the importance of sound money.

 

Years later Greenspan put his vanity above his ideals.  During his 18-plus years as Fed chairman he went on to provide the elastic currency that allowed for the national debt to stretch from $2.3 trillion to $8.5 trillion.  That amounts to a 269 percent increase.  Such a dramatic increase would never have been possible under the gold standard.

Greenspan’s elastic currency also allowed for the nation’s ballooning entitlements, funded via deficits.  Maybe his present despair stems from the full knowledge and remorse of his dirty deeds now coming home to roost.  For in Greenspan’s words, “deficit spending is simply a scheme for the confiscation of wealth.”

 

3-Federal DebtTotal federal public debt: the next update will show a more than $1 trillion jump to a new high above $19 trillion. The current administration has finally succeeded in more than doubling the public debt in just eight years – unsurprisingly, with nothing to show for it – click to enlarge.

 

Just ask David Stockman.  Greenspan, bar none, perpetuated this wealth confiscation scheme with great proficiency.  Any remorse he now has is too little too late.  Like a pickled cucumber, his actions, and the actions of his predecessors, can never be undone.

Look around.  Today we’re all living with the exacting consequences of Alan Greenspan’s pickled economy.  Quite frankly, it bites.

 

Charts by Heritage Foundation, acting-man.com (adapted from Roger Garrison), St. Louis Federal Reserve Research

 

Chart and image captions by PT

 

M N. Gordon is the editor and publisher of the Economic Prism.

 

 
 

Emigrate While You Can... Learn More

 
 

 

Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

One Response to “Alan Greenspan’s Pickled Economy”

  • therooster:

    Gold bullion is now elastic thanks to the floating trade value as measured in USD/oz. We now simplymake gold’s mass the unit of account. We can thank the severance of gold’s price pag back in 1971 for this new chapter in debt-free liquidity.

    Liquidity is directly proportional to the product of weight x trade value/unit weight = weight x USD/oz

    To raise liquidity, either element in that little equation can be raise. Gold’s liquidity is not simply peciated on its weight, but also on its purchasing power. Could this be why the price peg of $35/oz was really severed, regardless of the official story line ? More importantly , does it matter ?

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • French labour union workers and students attend a demonstration against the French labour law proposal in Marseille, France, as part of a nationwide labor reform protests and strikes, March 31, 2016. REUTERS/Jean-Paul Pelissier/File PhotoHow the Welfare State Dies
      Hollande Threatens to Ban Protests Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it's basically crickets (sole exception: Politico).  Gee, we wonder why?   They don't like him anymore: 120.000 protesters recently turned Paris into a war zone. All...
  • The-answer-is-yesToward Freedom: Will The UK Write History?
      Mutating Promises We are less than one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the outcome is too close to call.   The battle lines are...
  • nails-in-a-bed-of-nails-new-yorker-cartoonGoing... Going... Gone! The EU Begins to Splinter
      Dark Social Mood Tsunami Washes Ashore Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this...
  • water houseA Market Ready to Blow and the Flag of the Conquerors
      Bold Prediction MICHAELS, Maryland – The flag in front of our hotel flies at half-mast. The little town of St. Michaels is a tourist and conference destination on the Chesapeake Bay. It is far from Orlando, and even farther from Daesh (a.k.a. ISIL) and the Mideast.   St. Michaels, Maryland – the town that fooled the British (they say, today). Photo credit: Fletcher6   Out on the river, a sleek sailboat, with lacquered wood trim, glides by, making hardly a...
  • queen_gold-840x501Rule Britannia
      A Glorious Day What a glorious day for Britain and anyone among you who continues to believe in the ideas of liberty, freedom, and sovereign democratic rule. The British people have cast their vote and I have never ever felt so relieved about having been wrong. Against all expectations, the leave camp somehow managed to push the referendum across the center line, with 51.9% of voters counted electing to leave the European Union.   Waving good-bye to...
  • junkThe Problem with Corporate Debt
      Taking Off Like a Rocket There are actually two problems with corporate debt. One is that there is too much of it... the other is that a lot of it appears to be going sour.   Harvey had a good time in recent years...well, not so much between mid 2014 and early 2016, but happy days are here again! Cartoon by Frank Modell   As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us:   “Businesses racked up debt in the...
  • deflated-souffleThe Fed’s  Doomsday Device
      Bezzle BALTIMORE –  Barron’s, in a lather, says the market is facing the “Two Horsemen of the Apocalypse.” Huh?   Only two? There were four last time!   Supposedly, the so-called Brexit – the vote in Britain this Thursday on whether to leave or remain in the European Union (EU) – and uncertainty over where the Fed will take U.S. interest rates are cutting down stocks faster than a Z-turn mower. But Brexit is a side show. As our contacts in London...
  • rate_hike_cartoon_10.15.2015_largeJanet Yellen’s $200-Trillion Debt Problem
      Blame “Brexit” BALTIMORE – The U.S. stock market broke its losing streak on Thursday [and even more so on Monday, ed.]. After five straight losing sessions, the Dow eked out a 92-point gain. The financial media didn’t know what to say about it. So, we ended up with the typical inanities, myths, and claptrap.   “Investors” are pushing the DJIA back up again..apparently any excuse will do at the moment. The idea may backfire though, as exactly the same thing happened...
  • Incrementum signalIn Gold We Trust, 2016
      The 10th Anniversary Edition of the “In Gold We Trust” Report As every year at the end of June, our good friends Ronald Stoeferle and Mark Valek, the managers of the Incrementum funds, have released the In Gold We Trust report, one of the most comprehensive and most widely read gold reports in the world. The report can be downloaded further below.   Gold, daily, over the past year - click to enlarge.   The report celebrates its 10th anniversary this year. As...
  • Brexit supporterGold and Brexit
      Going Up for the Wrong Reason Gold is soaring. It should—and a lot—but in my view not for the reason it is. Indeed gold is insurance for uncertain times, a time that Brexit seems to represent. But insurance is an administrative cost — one must minimize its use.   August gold contract, daily – gold has been strong of late, but this seems to be driven by “Brexit” fears - click to enlarge.   Moreover, insuring against Brexit might ironically be equivalent...
  • cameron at the EUBrexit Paranoia Creeps Into the Markets
      European Stocks Look Really Bad... Late last week stock markets around the world weakened and it seemed as though recent “Brexit” polls showing that the “leave” campaign has obtained a slight lead provided the trigger. The idea was supported by a notable surge in the British pound's volatility.   Battening down the hatches...   On the other hand, if one looks at European stocks, one could just as well argue that their bearish trend is simply continuing – and...
  • 7-bongo-bongo1Claudio Grass Talks to Godfrey Bloom
      Introductory Remarks – About Godfrey Bloom [ed note by PT: Readers may recall our previous presentation of “Godfrey Bloom the Anti-Politician”, which inter alia contains a selection of videos of speeches he gave in the European parliament. Both erudite and entertaining, Mr. Bloom constantly kept the etatistes of the EU on their toes.]   Godfrey Bloom, back in his days as UKIP whip Photo credit: Reuters   Before becoming a politician, Godfrey Bloom worked for 35 years...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com