Wikinvest Wire

Grantham on Greenspan

Wednesday, October 28, 2009

From his latest quarterly musing over at GMO, Jeremy Grantham (whose market calls this year have been spot-on) offers a few more thoughts on the former Fed Chairman.

In Case You’ve Forgotten, We Have My Old Nemesis, Greenspan

Alan Greenspan receives the title of Maestro in the U.S. and is knighted by the Queen for thoroughly demolishing the integrity of the U.S. financial system. He overtly ignored the great threat of bubbles in asset classes and, in fact, encouraged them. He Ayn Rand-ishly facilitated the progressive dismantling of governmental restrictions on financial behavior, he deliberately kept real interest rates at zero for years, etc., etc., etc. You have heard it before. Now, remarkably, in his very old age he has become imbued with the spirit of Hyman Minsky: “Unless somebody can find a way to change human nature, we will have more crises.” Now he finally gets it. Too late! In his merely old age, he ignored or abhorred Minsky, and consistently behaved as though markets were efficient and the players were honest and sensible at all times. But for all of the egg on his face, the Maestro continues to consult with the rich and famous, considerably to his financial advantage. In the good old days, he would have been set in the village stocks, and not the kind you buy and sell. And I would have been right there, Alan, with very ripe tomatoes.
Ouch! If Grantham hadn't been so right about so many other recent financial market developments, you could easily dismiss this as sour grapes of one kind or another.

But he hasn't and you can't.

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The Real Deal said...

Well, Grantham criticism of Greenspan is hindsight. Where was he when Greenspan was in charge?

Greenspan, mighty as he was, cannot do his thing without the overwhelming support of the Wall Street elites, the business execs, and certainly Congress. Indeed, Greenspan was a guy with 'classical economic' prudence before he became Fed Chair. He even believed in the sanctity of gold-backed dollar. All that changed as he appeased presidents in order to stay in power.

While in power, Greenspan practiced the ultimate Ponzi scheme. He issued ever more dollars to finance Congress unlimited appetite for money. Congress thought it is America divine right to be the imperial superpower to rule the world, control critical resources and trade routes, to be paid unlimited tributes, and to enjoy the ultimate good life. After the USSR collapse, Greenspan bought the whole damn idea of super-empire too. Is was his job to finance it.

Greenspan, by the time of Clinton/Bush Jr, has ceased to be a central banker. He became the imperial financer - charged with managing the economics of expanding the mighty US empire. The US dollar is his grand tool, more powerful than the entire US military. He became the war general more powerful than Ike and MacArthur.

History will remember Alan Greenspan as the man who played a central role in the creation of the grandest imperial economic bubble in human history. He locked horns with an emerging China, a backward country of poor people and Communist politics, intended to use it as just another sweat shop to feed tributes. But found his grand design got punctured by the Chinese, thus began the new world order of America decline.

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