Why is Greenspan to blame for the fiscal insanity of 2000 to present?
The governmental fiscal insanity? He's more of an outlier, attempting to falsely inflate the $US in order to attract debt financing to support the habit of a republican congress and president on a spending binge.
Where is the primary contributor, though, is that throughout his tenure, he kept making for easy credit, dramatically increasing the money supply, which created various bubbles in the financial markets and eventually even the real estate market. It finally got so out of hand that he started an asinine series of rate hikes when there was no other economic reason for doing so other than a vain attempt to reign in the runaway bubble. The true economic fundamentals were in poor shape, and thus his rate hikes had virtually no impact on long-term rates. Therefore, the housing bubble continued to march onward, we've been in an inverted yield curve for most of the past two years, and he just mumbles "conundrum." On
November, 2005, he announced that March 23, 2006 would be the last day that the Fed would disclose the full money supply. This was more than a pin-prick, this was a slap upside the head that the $US was about to fall in a big way and that we will be facing inflation rates that we've never seen before. As a result, look at what happened to the world gold as that news spread broke:
Thanks to hurricane Wilma, we were without power when that news broke, and I missed out on the first 10% of the climb. However, the rest of the world caught on immediately. $US securities started being sold throughout the world, and investment turned to gold. We sold almost nothing from that point through March of 2006 that was more than a 90-day note.
The week before March 23, 2006 the Euro was trading at 1.18/$US. The week after, it was 1.23/$US. And, of course today it is sitting at $1.41/$US and gold is sitting at $741. This rapid decline is primarily due to the failed policies of Alan Greenspan. The worst impact is the number of countries, particularly those in the Middle East, that are dropping the $US. Of course Iran and Syria have dropped the $US. Iraq had announced its dropping of the $US, but the very first thing we did after Saddam fell was to re-establish it as Iraq's oil exchange currency. But, we've lost Kuwait and the UAE this year as the decline of the $US was causing them huge inflation rates. The Saudi's are on the fence. I don't think they'll turn on us as they want our military weaponry (although Russia is making a huge push). However, they still plan on weaning off the $US starting no later than 2010. I hope they don't. If they do, that act alone regardless of anything else, will end our reign as the world's reserve currency. If that should happen, it will further compound the difficultly in financing our governmental spending. Those people with ARM mortgages that lock in at 12%, or whatever their max rate is, will be considered fortunate. One thing Greenspan did reported get right in his book (I haven't read it myself, yet) is that before the next president gets out of office, 10% inflation will be the norm - and that's if the $US is still the world's reserve currency. My biggest worry is that he is estimating too low, even if we do somehow remain the reserve currency. If the $US loses its reserve status, that 10% won't even be close. And, although in his book, Greenspan whines that it is all a conundrum, the inflation, interest rates, declining $US, and the potential loss of reserve currency status are indeed his legacy.
A couple other related things the media has not appropriately covered, or, in most cases completely whiffed:
About half of all corporate profits from US operations over the past several years has come from banking and finance. I'm sure you've seen how well they are(n't) doing right now. Also, watch out for false profit reports, especially from service companies. Most of their operations are offshore, and will be affected by exchange rates. For example, last year the Euro averaged about 1.26/$US. This year, it will probably average about 1.39/$US. A company that sold a million euros worth of services last year reported US revenue of $1,260,000. This year, that same company could have had a 5% decline in actual production, selling 950,000 euros, yet
reported US revenue climbs to $1,320,500. A 5% decline will be reported as a 5% increase simply due to the collapsing $US, and it will go right over the heads of all the idiots in the media. They can't distinguish between growth and shrinkage.
One last thing to watch is the interest rates on our securities. Immediately before the Fed lowered rates on the 18th, the benchmark rate on the 10-year note was 4.44%. With a .5% rate cut in both the fed funds and the discount rates, the 10-year note rate immediately CLIMBED. It's now at 4.64%, up .2% following a .5% rate cut. That's a kick in the teeth to let us know of upcoming inflation. Compounding this further, and a story kept quiet in our media, is that last Saturday, China announced it was going to sell-off of $200 billion of $US securities. While the terms aren't published, and assuming they act with some prudence, this will still cause our interest rates to climb regardless of our economic circumstances. Also, this may be an indicator that China will be greatly cutting back on purchasing of further $US securities, which will cause interest rates to climb and, paradoxically, the $US to fall.
