In Stark Contrast

[Note: Yesterday's post was also published on Financial Sense Online - thanks to Mary Puplava who does a fine job over there.]

Today we look at the contrasting views of the performance of Alan Greenspan as Chairman of the Federal Reserve.

The Washington Post reported yesterday that the White House is considering asking Fed Chairman Alan Greenspan to continue on after his term expires next January. This transition is a seminal event, as the apparent prosperity and wealth, to which all Americans have become accustomed, is in large part due to the Federal Reserve policies during Easy Al's term.

So what did the White House have to say?

"President Bush believes Chairman Greenspan is doing an excellent job," said White House spokesman Trent Duffy.

How about a Republican Senator from the south?

Sen. Richard C. Shelby (R- Ala.), chairman of the Senate Banking, Housing and Urban Affairs Committee, said, "If we could keep Alan Greenspan on for 10 more years, I wouldn't have any qualms, based on his record which has been exemplary overall." But, he added, "an appointment would show decisiveness that [White House officials] are on top of the game, which I'm sure they are."

How about the American Enterprise Institute?

"Greenspan is doing such a terrific job, you can see how they would be tempted [to ask him to stay on]," said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute. But, he said, postponing a nomination would send "a negative signal to the markets. . . . It implies that Greenspan is irreplaceable. It implies if we don't have Greenspan, everything will fall apart."

In summary, many believe this:

Greenspan has drawn deeply from his business experience during his nearly 18 years as Fed chief, helping guide the economy and the markets through a stock market crash, two recessions, several international financial crises, the nation's longest peacetime expansion, the 2001 terrorist attacks and other challenges.

In stark contrast to these views, we now turn to Dr. Marc Faber.

Dr. Faber has written one of the best financial books in recent years entitled "Tomorrow's Gold". It gives an excellent historical perspective of the new world economy from someone who has lived in Asia for the last 25 years, and who has proven to be one of the clearest thinkers regarding the global economy. Among other things, Tomorrow's Gold details the rise of Asia and the implications on global trade and living standards - it is an excellent read.

In an article published earlier this week, we learn what he thinks about the current Fed chairman:

So, with the entry of China and India into the global economy we had low consumer price increases around the world - although higher than the statisticians in the US are under political pressure computing, calculating and doctoring - and this led Mr. Greenspan to create, after he fueled the NASDAQ investment mania with easy money, another gigantic bubble: the housing bubble.

But more importantly the 'newest economy' is characterized by seemingly endless bubbles, courtesy of the man who has done more to destroy the value of paper money than any one else in the 200 year history of capitalism: Mr. Alan Greenspan.

On how to spot bubbles:

There are many ways to recognize a bubble ... In the case of US housing it is the number of home sales as a percentage of households that show how speculative the market has become ... The reason asset inflation is so dangerous is that central bankers - usually unemployable in any other capacity - not even as waiters - only pay attention to consumer price inflation. Therefore, when consumer prices do not rise much, for example because of international competition (as is now the case), they print money like water.

Now, I admit that it is always possible that Mr. Greenspan will ease once again massively - if the economy weakens. That should almost certainly be the case if home prices begin to weaken since housing inflation was driving consumption or more appropriately put over-consumption in the last few years.

On how Americans have been distracted by bubbles, while Asians toil:

The new economy is characterized by the rise of China, India and to some extend also Russia as global economic and geopolitical players. Out of the blue and certainly totally unexpected to the American visionaries that spent their days counting irrelevant eyeballs in order to value Internet stocks, China has overtaken the US in many markets such as for steel, iron ore, copper, not to mention in the production of appliances and consumer electronics."

Who do you believe?