We are studying the life and times of former Fed chief Alan Greenspan. Not that we expect to discover anything new. We were more or less awake and alert during his entire public career; there is little that isn’t known about the man and his times already. ‘The best-known public official since Pontius Pilate’ is how we described him in one of our books.
But it’s helpful to go back over the story, the flow of history…and the large role he played. Maybe we can learn something.
Mr. Greenspan was — at least on the surface — one of the most influential people of the late 20th and early 21st centuries. He was the top man at the Fed from 1987 to 2006.
The demon door swung open on his watch at the Fed. Thenceforth, America’s central bank would no longer stay in its place, guarding price stability and ensuring full employment. It would ensure a rising stock market, too.
And yet, wouldn’t the door have opened without him?
We recently read Sebastian Mallaby’s new biography of Greenspan, The Man Who Knew .
The man who knew? Greenspan didn’t seem to know that the biggest bubble in history was created right under his nose. Nor did he seem to notice that the post-1971 fake-money system had created the very distortions and perversities he had warned about as early as 1966.
On the book jacket, Mallaby attempts to explain the title. He suggests that the financial crisis of 2008 was not Greenspan’s fault. Apparently, he knew the financial system was threatened by a sharp and painful correction.
If so, why didn’t he say something?
Even we knew a bubble had formed. And we said so. We warned readers so often, they got tired of hearing it.
As an important aside, once again we are issuing tiresome warnings. Debt levels are now higher than ever. Total world debt now stands at $217 trillion — or 325% of global GDP.
Meanwhile, US government debt, as officially measured, is closing in on the $20 trillion mark. And last year alone, the Fed added debt equal to more than $12,000 per US household.
It did this, by the way, while household incomes barely rose at all. Were last year’s national debt increase equally distributed among American households, the typical family would have lost an amount equal to two-and-a-half months’ pay.
Blinded by ambition
Of course, we can’t predict the future any better today than we could 10 years ago. Besides, this is a free service; what do you expect?
But as an act of courtesy, even a total stranger should tell you if he sees your hair is on fire.
So watch out, because stocks are near all-time highs, too.
Wall Street prices no longer reflect a solid and sober assessment of a company’s earning potential. Instead, they’re based on insider manipulations (companies have been borrowing heavily to buy back their own stock)…or gambles (investors bet that Trump’s tax and regulatory cuts will mean higher earnings).
Don’t wait for a warning from Madame Yellen; you won’t get it. She sees no bubble. In 1996, Mr. Greenspan famously had no trouble spotting ‘irrational exuberance’. But by 2006, he wore dark glasses and carried a white cane.
‘Bubble? I don’t see any bubble,’ he claimed.
‘He was blinded by ambition,’ you might say.
Maybe. But maybe what really happened was that he was never a man who made history. Instead, he was bent by it.
For The Daily Reckoning, Australia