David & Jim, thanks for your replies.
Jim: Your jaded assessment of AG, and the Fed as an institution, is most understandable. However, is it your opinion that Fed behavior has chiefly been the result of one man, Alan Greenspan? Or a larger confluence of factors, of which Greenspan has really simply been a figurehead? An economic avatar of sorts, through which much more powerful voices speak?
And if there are more powerful voices behind the Greenspan persona, who are they exactly? And what consensus is behind their monetary antics of the past decade in particular? Did AG's action simply require elite Anglo consensus? Anglo-European? Or behind-the-scenes consensus from key Asian elites, namely China and Japan?
My understanding of the Kondratieff nadir/winter, is that it is frequently accompanied by severe geopolitical tension, which often leads to warfare. The proximate condition for such warfare is a fracturing of consensus amongst geopolitical elites, who in a time of plenty could carve up the spoils, but in a time of scarcity, are more than willing to create fascist pretensions to drag their populaces into bloody combat.
My own thoughts on the matter is that the outrageous monetary antics of the 1990's til today were the result of a global consensus amongst geopolitical elites in which everybody was a winner (amongst the geopolitical capitalist classes) ... in the short term (of course, it wasn't a great decade to be a Russian teacher or a Guatemalan farmer). It is so similar to the 1920's, where the systemic problems of the gold standard and Britain's geopolitical decline were ignored simply to prop up the existing system.
The monetary system seemed to evolve into a sort of a casino of sorts. It seemed the focus was on leveraging, gearing, speculating, hedging, a concern for milking the system for everything one could, and be dammed the structural, secular consequences. As long as one profited, really, that seemed to be the main thing. And in the 1990's, for the most part, amongst the geopolitical elites, EVERYONE did (even if the profits may turn out to have been significantly illusory).
This is the system over which Alan Greenspan presided. And if he would have tried to stop it, he would have been removed. To my mind, he was a figurehead, a role player, nothing more.
HOWEVER ... and it was all along after all inevitable ... I sense an imminent fracturing of global elite consensus. The US casino monetary environment is no longer working in everyone's (amongst the geopolitical elite) best interest. The price to foreign counties (chiefly Asia) for sustaining capital flows into the U.S. economy and treasury is becoming too steep. And besides, Asia doesn't need the U.S. like it used to. It has already absorbed a huge amount of its manufacturing jobs, and inter-Asian trade will grow in importance as dependence on the US as an export market wanes.
The point being that it simply wasn't in ANYONE's interest to discipline "easy Al" until now. However, I believe we are nearing a significant transition point. I absolutely agree that Greenspan is not about to reverse his policy of extreme monetary accommodation because he went back and read his doctoral thesis, and saw the light. However, there are global financial forces that to my mind are preparing to discipline AG and the interests he primarily represents in a serious way if he continues along the present course. I do not believe that the past 10-15 years are a proper harbinger of monetary policy for the next decade ... anymore that the 1970's were a harbinger for Paul Volcker's reign in the 1980's ... or the 1920's were an appropriate framework for 1930's monetary policy.
The most significant institutional forces that could discipline AG to my mind are (i) foreign central banks, and (ii) the bond market. In effect AG and the interests he primarily represents are increasingly at the mercy of these two forces. THEY, not economic theory or US domestic policy, will be the primary forces dictating US monetary policy over the next decade (well, over the next two years at least. Maybe by 2006 we'll get a 3rd millennium version of Roosevelt, following GW, the present-day Herbert Hoover).
At this point, a run on the US$ could force the US to raise interest rates to continue to attract the capital the US require to finance its "twin deficits". In a world already prone to deflationary debt implosion, this could give rise to a truly terrible situation. To my mind, this is NOT an environment in which commodities would excel ... except for perhaps precious metals ... once the primary deflationary collapse had significantly run its course.
Jim, you had stated:
we live in highly abnormal times
for your fears to come to pass, the Fed has to stop the presses
aint gonna happen
... The Fed isn't calling the shots anymore. My belief is that the Fed WILL stop the printing presses, precisely because it IS NO LONGER calling the shots. It's just that the fact that it "isn't" calling the shots any longer, is not generally appreciated ... perhaps even by the Fed. It may be a hard lesson learned. Ahh, the fall from hubris is a painful one.
Thoughts? Comments? Divergent viewpoints?
P.S. I could be 100% wrong on every single one of my assumptions and conclusions. :)
Best wishes,
Glenn |
