December 30, 2011

Alan Greenspan

In my first post I would like to highlight a very interesting person in my opinion, Alan Greenspan.
Most people know this man as the chairman of the FED (1987-2004). In his role as the chairman he was responsible for the lowering of the interest rates to 1%. This in order to avoid a heavy recession after the 9-11 attacks.

In doing so, he created a bubble of gigantic proportion as mortgages became available at low costs. Also, people never able to buy a home (lack of income or no job!) were under this move able to load themselves up with debt. As there are several interesting things to discuss about this actions, I'm interesting in only two things:
1. Were his actions based on doing the right thing to the economy?
2. And were his actions based on his view on the economy generally?   

These are two different things. When he was in the position as chairman of the FED, his mandates were simple ( on paper though). Maximum employment and stable prices. When either one is at stake he has to react. As he did the economy went in overdrive.The economy functioned for a couple more years, but in case of curing the patient he only kept the patient longer alive. The collapse of the American housing market, was one of the causes  for the Credit Crunch in 2008. We still face the consequences every day. So he was doing what was "right" for the economy.
Here we can conclude that what he did, when the economy was on the brink of a collapse, was asked from him as a chairman. Was this his personal conviction?
In order to come to an answer it is necessary to look into the history of Mr Greenspan.

In the 1950's he was part of an intellectual group of people surrounding Ayn Rand. With Mr Greenspan and other intellectuals they talked about several subjects, including the monetary system. The corporation went further, and in her book Capitalism: the unknown deal (1966)  she included Mr Greenspan's essay Gold and economic Freedom.

In this essay (which is a description of an old fashioned gold standard) there are some interesting lines, which may conflict with the actions he took when he was chairman of the FED. (Emphasis mine)

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard. Link

So while he advocated a separate store of value function outside the currency (gold) he created  the greatest Ponzi scheme of all time. By creating free money he was confiscating wealth from the savers. What most people don't know, was that during his duty as chairman of the FED he still advocated for the gold standard during congressional hearings. (Emphasis mine)

R.W. Bradford writes in Liberty magazine that, as Fed chairman, "Greenspan (once) recommended to a Senate committee that all economic regulations should have fixed lifespans. Senator Paul Sarbanes (D-Md.) accused him of 'playing with fire, or indeed throwing gasoline on the fire,' and asked him whether he favored a similar provision in the Fed's authorization. Greenspan coolly answered that he did. Do you actually mean, demanded the senator, that the Fed 'should cease to function unless affirmatively continued?' 'That is correct, sir,' Greenspan responded."
Bradford continues, "The Senator could scarcely believe his ears. 'Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard?' Greenspan responded, 'I've been recommending that for years, there's nothing new about that. It would probably mean there is only one vote in the Federal Open Market Committee for that, but it is mine.'" Link

Here we come to the core of my post. Alan Greenspan was acting "A" but saying "B".
Although this is nothing rare on the international stage, could there be a reason for this action?
Interesting is again to look at his history were he stayed very close to Ayn Rand who is  known for her best-seller Atlas Shrugged. Link

In this book, there is a certain person named Francisco d'Anconia. He is the owner of the best and most productive copper mines around the world. On a certain point when governments are trying to get more influence in his company, and he sees that eventually they will confiscate all his wealth, he decides to set up a plan.
He tells to investors there are enormous supplies of copper in the mountains. As he is a successful man he's trusted widely.  People were going to make enormous investments and were following him blind on this.  In the end there wasn't to be copper at all. His company was doomed........all the money was lost. In this we can see similarity with the housing bubble in the USA.
Francisco's purpose was to show that company's are what they are because of the knowledge and the effort of the people who led them. The government is trying to get an income by taxation, not adding any value to the company. When government takes over, everything fails, simply because of the lack of knowledge.

So before you can build something new, it has to be obvious to everybody that the current system isn't functioning properly. The re-start has to come bottom-up.
Was Greenspan thinking on this when he was lowering the interest rates to 1%? Did he knew this would speed up the meltdown of the current system?

In Atlas Shrugged Francesco speeches. His speech is about the concept of money, and about exchanging values. It's a very interesting speech widely spread. In a lot ways this speech looks like the statement mentioned above by Mr Greenspan's  Gold and Economic Freedom. Please read it yourself. Link

And when you think this is it....think again.This is not all.
When you thought everything was coincidence, Greenspan showed recently it can get even more crazy. To me this is obvious a way to make clear the absurdity of the current system.
Please watch this interview where Mr Greenspan says the USA can pay any debt because they can ALWAYS PRINT MONEY. Look at the face of the guy next to him, his eyes are almost falling out.

I know this seems all to ridiculous to be true, but with the knowledge we now have is it?
In fact they can always print money.
It would make the debt worthless instantly. And as many savers (Country's and citizens) store their wealth in this $-currency, would wipe out a lot of "savings".
Would you feel fine if you're savings (even of small worth) are held in a currency formerly managed by a man telling the world they could always print money?

Brings us to the questions I started my post with.
1. Greenspan's actions were indeed right for the economy in the way the economy didn't come to a standstill than.
2. Greenspan's view on the economy totally differs from the actions he made. Before he was chairman of the FED, as a chairman and afterwards.
All these things together make it possible that he had a different agenda. As these actions stand so far from his view, it could be a way to speed things up.

Everything I discussed above is a possibility. Only one person can bring clarity in this. I know Atlas Shrugged is just a book. A book with a very interesting track record on several subjects.
But what I would like to show is that even though on the first sight things seem obvious, they may not always be.
What is clear to me is that we are evolving in a new monetary system, away from the $.
And as it is to me, I'm convinced it is to Mr Greenspan.


Aquilus said...

I like it when an author makes me think. Very nice start to your blog I would say.

Boefke said...

Thank you very much. Made you think? Mission accomplished.

Aquilus said...

Yes.The cognitive dissonance is impressive throughout his life (when everything is presented together)

arthur legg said...

All sounds very road to roota to me.
A Greenspan has had a very succesfull career.
Maybe he read Machiavellian before he read Ayn Rand.KISS maybe?

A prince never lacks legitimate reasons to break his promise."
"A wise ruler ought never to keep faith when by doing so it would be against his interests."
"Of mankind we may say in general they are fickle, hypocritical, and greedy of gain."
"One change always leaves the way open for the establishment of others."
"Politics have no relation to morals."
"The fact is that a man who wants to act virtuously in every way necessarily comes to grief among so many who are not virtuous."
"The one who adapts his policy to the times prospers, and likewise that the one whose policy clashes with the demands of the times does not."
"The promise given was a necessity of the past: the word broken is a necessity of the present."
"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."
"Whosoever desires constant success must change his conduct with the times."

A Legg

Boefke said...

Dear Mr Legg,

Thanks for your response.
You make me laugh a bit when you call this a road to roota story. That is or was never my intention. Actually I want to stay far from "theory's" and people fulfilling an orchestrated route.

What I liked to highlight was the fact that the history showed a totally different outcome to expect of his actions made. See?

That Mr Greenspan acts in a similar way Francesco did in Atlas Shrugged, is for the record. I was somewhat prepared for the kind of reaction you make.

Please read carefully my last sentences and I'm sure you understand the case I want to make more. It is a possibility, but not the main conclusion by far.


FOFOA said...

Happy New Year, Boefke! And welcome to blogging!!

Boefke said...

Happy New Year FOFOA to you! My first steps on the slippery more may follow.

Dr. Peter T said...

Impressive analysis. Thank you.

Rien said...

I vividly remember in 2002 while working in the garden, on a break from reading Atlas Shrugged, that A.G. actions made perfect sense when viewed from the perspective of the book.
Its almost too obvious to miss.
Everything he said and done since is in complete harmony with that pov.

Good luck with you blog!

Boefke said...

Thank you Rien.

And that was the only point I tried to make here. Not one of a "conspiracy" (hate that word), just of a man, probably inspired by something different that we expect on the first sight.

He is called Mr Dollar, but with this new insight it is hard for me to look at him this way.

henq said...


A) I had the same associative thoughts as Arthur: Road to Roota. Strange comics book to be published by the FED (in the days AG worked with AR a lot).

B) Read Alan Parks' analysis of AG's speeach in Leuven.
Iteresting read indeed!

Keep up nice the blog


Boefke said...


Thanks for the link to Alan Parks' analyse. I didn't know this piece, so I'm eager to read it as soon as possible.

Quite interesting though, that a possibility planted at a forum evolves into something bigger.
When I see the reactions there are fortunately more people seeing the contradictions on this subject.

Thank you,