MarketWatch should be ashamed of
itself. In a July 24, 2014, interview, Mephistopheles was treated with the
respect due a senior statesman, when he should have been asked: "Have you
no sense of decency sir, at long last? Have you left no sense of decency?"
The answer, of course, is "no," though Greenspan does not understand
that.
Left on our own, some comments MarketWatch should have mutilated.
Greenspan is quoted in italics:
"[N] o central bank can be
oblivious to what is happening, not only in credit markets, which is, of
course, the Fed's fundamental mandate...."
Greenspan did not
state just what the Fed's mandate concerning credit might be. Of course, he
wanted to leave MarketWatch readers with the impression that prudence is
paramount, and that "The Greatest Central Banker who Ever Lived"
(Alan Blinder, Princeton economics professor; Federal Reserve, rag-sheet
propagandist), established the industry standard. From the time Greenspan was
named Federal Reserve chairman until he left office, the nation's debt rose
from $10.8 billion to $41.0 billion. It had risen to a level at which it was
unserviceable.
"Without asset-market
surveillance, you do not have an integrated view of how the economy
works."
Chairman Greenspan
would not allow the FOMC to discuss asset prices. By the mid- to late-1990s,
there were many FOMC members who raised the topic of runaway asset prices,
including stocks, houses, booming housing debt that was boosting those prices,
and out-of-control consumer spending. The most persistent critic was Jerry
Jordan, president of the Cleveland Fed.
At the December 16,
1997 FOMC meeting, Jordan said: "Some Board members referred earlier to
the dichotomy between the prices of services and the price of goods. That
clearly is the case, but the notion of dichotomy also has to be applied in the
case of asset prices....I was reading some material about the operations of the
FOMC in the early 1930s." That material has been annihilated by the
so-called academics.
Jordan concluded, the
Fed's myopic concentration in the 1920s on a steady price level of goods and
services was wrong: "I think it's a useful reminder of what can go wrong
if we are too narrow in thinking about the words 'inflation' and
'deflation'....What do we mean by the word 'inflation?' Clearly, it cannot
refer simply to the current price of goods..."
Greenspan ignored
Jordan's observation. Later in the meeting, Greenspan thought that
"[s]omething very different is happening.... [W]e keep getting reams of
ever lower CPI readings that seem outrageous in the context of clearly
accelerating wages and an ever-tighter labor market...I was startled by this
morning's CPI report. We cannot keep getting such numbers and continue to say
that inflation is about to rise." Jordan had just told Greenspan that
inflation was out of control: it was Microsoft rather than Mayonnaise that was
inflating.
"How to respond to asset-price
change is a legitimate issue. But not to monitor it, I think, is clearly a
mistake."
In 1998, Chairman Greenspan told the FOMC, in effect, there would be no further
discussion about rising asset prices. He declared asset prices could no longer
be mentioned at meetings: "I have concluded that in the broader sense we
have to stay with our fundamental central bank goal, namely to stabilize
product price levels."
In fact, excesses
outside the Eccles Building were not dissimilar to those today. Jerry Jordan,
at a 1998 FOMC meeting: "Bankers complain a lot that pension funds and
insurance companies are doing deals that no sensible banker would be willing to
consider."
Greenspan's rationale
was nonsense: "I do know that the presumption we have discussed in the
last year or so that we can effectively manage a bubble is probably based on a
lack of humility. As I've said before, a bubble is perceivable only in
retrospect." My italics.
Greenspan had never
said "a bubble is only", etc., anywhere, to any audience. His
declaration was accepted immediately. The mental incapacity of this generation
of economists is evident in the fact this position would become known as the
"Greenspan Doctrine," and accepted by central banks, academic
economists, and the media.
Okay, let's end with a
laugh. Alan Greenspan in a commencement address (institution withheld to spare
humiliation) on May 15, 2005: "I do not deny that many appear to have succeeded
in a material way by cutting corners and manipulating associates, both in their
professional and personal lives. But material success is possible in this
world, and far more satisfying, when it comes without exploiting others. The
true measure of a career is to be content, even proud, that you succeeded
through your own endeavors without leaving a trail of casualties in your
wake."
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