January 2018
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All articles written by Economics9698

Alan Greenspan and the Crash

Alan Greenspan was from 1987 to 2006 the Chairman of the Federal Reserve of the United States. Basically he set Federal Reserve interest rates, performed oversight on the Federal Open Market committee (FOMC) and set reserve requirements for banks. The first function grabs all the headlines in the press. And deservedly so since this operation affects home loans, credit card rates and what banks can borrow from other banks. But it was the second function that created as much of the financial mess as the first one. But let’s start off with the first function specifically the federal funds (FF) rate.

Alan Greenspan did an incredible job for many years. Many economists were in awe of his ability to anticipate 3 months to a year down the road what the economy would be doing. This is referred to as “lag” effect on the economy. Simply put what Mr. Greenspan did in March would not have an effect for months. It takes a real master and a little luck to get monetary policy right looking so far in the future but give Mr. Greenspan credit. He did it for years under Reagan, Bush I and Clinton.

In 1987 when Black Monday occurred and the stock market crashed 22% (the equivalent of a 3,000 point drop in the 2008 market) Mr. Greenspan was masterful in restoring confidence in markets. The Federal Reserve pumped money into the markets and restored confidence. By the end of the year the stock market was in the black by going from 1.897 in January to 1,939 in December. A textbook example of how to handle a crash. Alan Greenspan’s reputation as the master of the Federal Reserve was born.

So what happened under Bush II? A good insight comes from following Mr. Greenspan’s corrections of the FF rate.

In 1987 the FF rate was 6% to 7.3%. Played like a master through the crash. 1989 as the Savings and Loan debacle was coming unhinged Greenspan raised the rate to 9.8%. A master stroke that caused a lot of silly loans that would have been made to become expensive even to the most blinded speculators. Now keep in mind the Savings and Loan disaster didn’t play itself out fully until 1990-91. Mr. Greenspan was ahead of the curve, saw what was coming and reacted properly. He made money more expensive for speculators saving the America public billions of dollars in bail out money. A masterful job of running the Federal Reserve.

As Mr. Greenspan saw the negative impact of the Savings and Loan disaster on the economy and the slowdown in economic activity he dropped the FF rate to 4.49%. Once again brilliant use of monetary policy. Everyone with inside business knowledge griped here and there but there was no disputing Mr. Greenspan was keenly aware of what was going on in the economy and was moving monetary policy in the right direction.

In the early 90’s as the economy tanked and Clinton came to power and raised taxes. The FF rate was lowered to 2.91%. As the 90’s went on Clinton cut capital gains taxes and signed the NAFTA free trade agreement with Canada and Mexico the economy began to heat up again. The FF rate climbed to 4.5% to 5.5%. Steady and calm as it should be for a steady and calm economic growth period. Well done, we all enjoyed the 90’s.

As the 90’s closed and the Internet stock exploded and went crazy huge amounts of wealth were being created. Mr. Greenspan gave his famous speech in 1996 about the stock market and irrational exuberance.

Mr. Greenspan 12-05-1996 “Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

Clearly Mr. Greenspan was way ahead of the curve since the National Association of Securities Dealers Automated Quotations (NASDAQ) didn’t crash until April 2000. And as this new wealth flooded Americas markets creating the specter of overpriced assets and inflation what did Mr. Greenspan do? Raised the FF rate to 6.85% putting a damper on inflation. Brilliant once again.

So what happened under Bush II? As money came into Fannie Mae and Freddie Mac flooding the home mortgage markets Mr. Greenspan didn’t notice? No! Mr. Greenspan did notice. He is recorded several times warning congress that more oversight and tighter financial restrictions need to be placed on Fannie Mae and Freddie Mac. Every chance he got from 2003 he mentioned the for coming crisis to congress until he retired in 2006. He was not ignorant. He just failed to act.

Why? Only Mr. Greenspan knows. What we do know is by 2002 the FF rate was 1.23%. Justifiable since the economy was recovering from 9-11 and a recession. As the sub prime loans began to dominate the markets starting in 2003 driving up real estate cost faster than inflation what happened? Mr. Greenspan LOWERED the rate to .97%. The exact opposite of his earlier actions under similar circumstances. The FF rate stayed at 1% through much of 2004 as foreign funds flooded US market in search of stable sure returns and sheer speculation. In essence Mr. Greenspan opened the floodgates of plentiful cheap money. Why?

Was he a saboteur? Did he want democrats to gain power? A financial collapse so well timed for the 2008 election certainly would not be beyond the capabilities of Mr. Greenspan and others with access to trillions in funds. We will never know the story for years but what is certain is Mr. Greenspan had a history of doing the right thing and he went against everything he had accomplished in the past to facilitate the destruction of the economy.

Eventually the FF rate was raised to 5.27% in 2007 as the housing markets were crashing all around everyone. The opposite of what should have happened. This intentional or unintentional destruction of markets by the Federal Reserve and it’s manipulation of interest rates is a text book example of why many economist think this power should be taken away from the Federal Reserve. Many economist feel interest rates should be set by market forces alone. Currently the FF rate is 0.13%. Yes 0.13%. The Federal Reserve is scrambling to restore credibility and facilitate money growth. Similar to closing the barn door after the horses have all escaped.

The FOMC actions are more complex but basically Mr. Greenspan was increasing money stock (MZM) during this period of 2003 to 2006. This while foreign investment was flooding our markets. Mr. Greenspan should have been stabilizing or even shrinking the money sock by selling treasury bonds and taking the money off the market and into the treasury. Coupled with raising interest rates and the housing bubble would have at the very least been mitigated if not eradicated.

Now the Federal Reserve is increasing stocks of money faster than ever. What is the next housing bubble? Most likely our currency. Our monetary base has gone up from $824 billion to $1,435 billion in 2008! Normally this change is from 0% to at the most 15% from year to year. This year it has grown an astonishing 80%! We are in very serious times.

If the congress fails to cut taxes or better yet scrap the current tax code and adopt the fair tax we will have a dollar collapse similar to third world countries like Argentina, Venezuela and the former USSR. Congress needs to cut taxes now; Congress needs to take away the power of the Federal Reserve to set interest rates. The Federal Reserve needs to quit increasing the money supply. Congress needs to quit baling out everyone. But none of this will happen. When it all collapses we will once again need to rely on each other to get through this. As we have for centuries.

History repeats itself. I wrote about him in my first post on this web site. And here is more evidence of Keynesian economics and the democrats seizing power for the foreseeable future. Another example of the people having their trust betrayed by selfish and political motives. Mr. Greenspan will go down as one of the worst Federal Charimans along with Eugene I. Meyer (September 16, 1930 – May 10, 1933), Eugene R. Black (May 19, 1933 – August 15, 1934), Marriner S. Eccles¹ (November 15, 1934 – February 3, 1948).

The Washington Freak Show Hall of Shame

Top Washington Freaks Make The Excrement List

We have had many freaks in and out of Washington DC throughout the centuries. In the past the press has covered up for them very well. We all know JFK was a sex and drug addict but during his administration none of this information about the ten prescription medications for war injuries or his multiple affairs was ever reported by the press. So there is limited information out there about past
scandals such as Eleanor Roosevelt and her alleged lesbian encounters. Sad, scandal is always entertaining and brings these elitist snobs down to the everyday mans level. We all chuckle and revel at the same time.

From the information we have what are the most freakish people too ever grace the hallowed halls of the United States Congress, US Senate and Presidency? Here is my take but by no means is this absolute.

10. Wilber Mills from Arkansas. This dates me but I was fascinated as a youth as to how the ever perfect congressman could get involved with some HOT stripper from Argentina. Annabelle Battistella, better known as Fanne Foxe was married for god’s sake! Every male 14 year old kid was totally enthralled at this scandal. Should we higgledy-piggledy old geezers and feminazi bra burners who take a dim view of such affairs of the heart. Mr. Hart got the big thumbs down at the convention even though he was leading in delagates. I hope the trade off was worth it.

9. Thomas Jefferson and Sally Hemings his slave at the time seemed to be doing the horizontal tango in secret for quite a few years. DNA test in 1998 proved Thomas (or one of his relatives) was fathering children with Sally. Who would have thought it? The master picking out the best looking slave for a little extracurricular activity. No you don’t say!

8. Grover Cleveland wins his election despite opponents making an issue of his illegitimate child with chants of “Ma, ma, where’s my pa? / Gone to the White House, ha, ha, ha.” Must have been a big deal back in the day. Must not have been that big of a deal because he won two nonconsecutive terms at the height of the Victorian era. 1885-1889 and 1893 to 1897. Even in the most socially repressive eras where there is a will theres a way. Something to keep in mind as the messiah will soon be our president. Yes we can!

7. Wayne L. Hayes, from Ohio Chairman of the House Administration Committee, resigned after a scandal broke involving his giving a raise to his mistress, Secretary Elizabeth Ray. She later told reporters “I can’t type. I can’t file. I can’t even answer the phone.” Cool way to use the power of the government. Another reason I read Time Magazine in the 70’s. That babe was smoking HOT! We forgive you Wayne. You set the standard and the standard was high.

6. The Miami Herald reported on a jaunt20between Colorado senator and presidential candidate Gary Hart and a 29-year-old Miami model named Donna Rice on a yacht called Monkey Business in the Caribbean resort of Bimini. Of course this revelation came about as Mr. Hart was winning the presidential primaries and delegate count with eventual nominee Walter Mondale. Unfortunately for Mr. Hart democrats have super delegates. And super delegates tend to be higgledy-piggledy old geezers and feminazi bra burners who take a dim view of such affairs of the heart. Mr. Hart got the big thumbs down at the convention even though he was leading in delagates. I hope the trade off was worth it.

5. Senator Bob Packwood of Oregon apologizes after 10 women accuse him of sexual harassment and later resigns after the ethics committee found him guilty of sexual misconduct. Talk about a pattern! This guy is a textbook example of what a sexual predator is. Well besides Bill. Put his picture as the poster boy for sexual harassment. Old ugly white guy with power desperate to have sex with any female dumb enough to submit. Yea that’s Bob Packwood. I bet when he was a kid he coined the phrase “if it’s old enough to bleed it’s old enough to breed.”

4. Sexual emails and instant messages between Congressman Mark Foley from, I am ashamed to admit it, Florida, and congressional pages surface just before the November 2006 midterm election. Hey Mark you’re a old disgusting man. Do you think a 16 year old would be interested in sex with you? Really? Creep.

3. Sen. Larry Craig of Idaho pleads guilty to disorderly conduct in a men’s room and a police officer testifies he was soliciting sex. Wow Larry we really didn’t know you were gay. Really! But hey dude drag your state and party down with you. Why not? It’s all about the life style and a paycheck right? Nothing like getting a bj while the wife is at the house with the Mormon ladies right? Another creep.

2. News of President Bill Clinton’s affair with Monica Lewinsky comes to light through a sexual-harassment suit against him by Paula Jones. Bill, dude, there are two things you should have done. First admit the affair. Second…, PLEASE dude you are (were) the President. The President for christ sakes! I was saddened not so much that you were having an affair but you choose Monica Lewinsky. Your better than that! Does the name Fanny Foxe ring a bell? Elizabeth Ray? Dude I saw you at Valencia Community College in 1996. You are so much better. To say I was disapointed in your choice of women would be the understatement of the decade. I was EXTREMELY disappointed when Monica’s picture was released to the press. Come on Bill! Do me a favor. Authorize a release of a scandal with one of your current babes. Make me proud. I know you have it in you. Show the world Monica was just a fluke. Redeem yourself Bill!

1. David Vitter of Louisiana is reported to be on the phone records of a Washington madam. Then the scum holds a press conference with his beautiful wife at his side and cries like a wimp. What a total scum. Tell your wife to stay home next time. You and Spitzer are tied for number one because of your despicable practice of having your wives next to you during your little Exposé to the world of your indiscretions. Ugh that was just GROSS! Disappear dude and reappear in the 22nd century. You should be publicly spit upon till you get completely covered in saliva. You getting my drift?

I feel bad for some of the ladies behind these men but not all. Vitter and New York Governor Eliot Spitzer both have beautiful wives and children involved in these torrid scandals. If I was married to either one of these women I would thank my lucky stars everyday I was with them. Frankly its gut wrenching to watch these news conferences with these creepy men and their beautiful wives at there side spilling their indiscretions to the media. I hope in the future these men (and women if the case arises) will have the decency to tell their wives (or husbands) to stay home for these horrid spectacles. I have no sympathy for these jerks. My sympathy is for the wives who suffer in silence at the betrayal and public humiliation they have suffered through no fault of their own.

As for Hillary there was a pattern. The time for tears was back in 1988. That time came and went. She made a choice agree or disagree. I hope it works out well for her. For all her faults she didn’t deserve to be treated like she was, either from Bill or her father. I hope the marriage last till death. She earns respect points but also needs to be reminded on a daily basis all men are not like Bill or her father.

As for Wilber Mills and Wayne Hayes I don’t know if I should thank them or condemn them. Certainly they peeked my interest in politics back in the day. Those scandals made reading Time Magazine so much more enjoyable and fascinating. It was a needed break from Emily Post and Watergate. A peek into the underside of humanity. All us teenagers at the time secretly cheered and wished we were in your place. Now that we are older, we cherish the brief moments we have with our families and children. We question your motivations and wonder how you could lose sight of what is really important in your declining years. We all get old and die. All that really matters is our children and family. You lost sight of that in your pursuit of self satisfaction and immortality. The glitter has faded and so has the memories of your exploits.

Barney Frank and others who had their positions of trust and power compromised were intentionally left out of the list. They are freaks but when some jerk cost you $150,000 on your 401K because of his desire for high quality sex with CEO’s it’s not that funny. Hopefully Frank will get his just rewards soon. CBS putting on a fluff peice on 60 minutes will not rehabiltate Frank.