Interesting. The election very well could be a pivot as market historians like me focus on this event. As far as Greenspan here is how I believed he has gotten it wrong for most of his career.
Looking back instead of looking forward at these economic, structural changes:
1. The leverage buyout movement of the mid to late 1980's.
2. The replacement of manufacturing by the service sector and the deflationary forces involved in the collapse of unions.
3. Having no understanding of the huge infrastructure of legal and illegal immigrants from Latin America and the 'wealth effect' created by these individuals.
4. Having very poor information about the Y2k 'theory'. He had no fact to base his unwillingness to raise rates in the summer and fall of 1999. The NASDAQ went from 2400 to 5100 during this time.
The leverage buyout movement was the beginning of the end of permanent job placement, which when considering the collapse of pensions and lifestyle benefits is a deflationary force in a time of globalization. The eventual undoing of dividends and diversification of assets is also deflationary. The Jack Welch model of going from 100 businesses to only 20 and a 'must be #1 or #2' is a strong deflationary force in my opinion.
The same with service jobs. No unions means downward pressure on prices. Latin American workers in the US willing to work very hard, accurate, and be dependable is in itself a wealth effect. Going from 5 dollars a week in Mexico to 400-600 dollars a week in the US is a wealth effect. Having a lot of personal exposure to this culture, many do not spend this money but indeed export it back to the home country or save it under their mattress. Often they live 10 persons in a two bedroom apartment with little or no furniture, so they do not spend.
Greenspan had no basis whatsoever for Y2k. Most of the consultants that I know in C++, Java, etc. said very accurately that most programming for dates go by YYYMMDD (1900 based), where Dec. 31, 1999 would be 991231, then Jan. 1, 2000 would register 1000101. They were absolutely correct. So there you have the capital spending scare and a bad Fed.
And lastly, your viewpoint on the election. The Maestro could very well have capitulated there, given how these mistakes were building in the back of his head as inflationary based policies began to feed the forces of deflation he so misguidedly missed. |
