Maurice, <<Uncle Al KBE is still working at nearly 70>>
... you stand corrected, Greensputin is 77, and he will not be the Chairman much longer :0)
His supposed successor BurnAndKaput is a man of no stature and zero intellect, minus the finesse, and will not amount to much against the mob electorates who want to vote themselves moolah.
Should the US repudiate the print-athon and spend-aplenty approach, then buy USD, invest in CDs yielding 12%. Otherwise, borrow USD and sell same. Excitement ahead, and so position accordingly, based on game theory and not your blind faith, as your faith, while touching, is betraying you. Your Greensputin is about to abandon ship :0)
As for the old folks on fixed income and folks about to retire in the US, drop trou, spread wide and get ready to scream arghhh, thanks to Greensputin, for not having dealt with the bubble but tried to paper and ink over the mess after it went bang.
The French Revolution now becomes more understandable, and less so the folks who claim deficit does not matter and say debt is of no concern.
Form stratfor.com daily briefing
Geopolitical Diary: Thursday, Feb. 26, 2004
U.S. Federal Reserve Board Chairman Alan Greenspan sparked a political firestorm on Feb. 25 by proposing that Congress slash entitlement benefits -- particularly from Social Security. A day earlier, Greenspan broached an only slightly less controversial topic in recommending that Congress establish a cap for the debt levels that quasi-governmental institutions Freddie Mac and Fannie Mae would be allowed to hold. The Federal Reserve manages U.S. monetary policy and is responsible for setting the interest rates at which banks -- and by association U.S.-based creditors -- charge borrowers.
The 77-year-old Federal Reserve chairman didn't even get out of the room after his Social Security commentary before a tidal wave of electioneering engulfed him. Within hours, Democrats and Republicans alike were assaulting -- or at least distancing themselves from -- Greenspan, with some of the more enthusiastic politicians calling for his immediate resignation.
To call Social Security the suicidal third rail of American politics is like calling the eruption of Mount Vesuvius a geological hiccup.
The message that Greenspan was trying to communicate is that the United States is living beyond its means. Barring the winning of an Intergalactic lottery, the United States simply does not have the resources to provide baby boomers the level of Social Security payments that they have been promised by politicians eager for the retiree vote. If the system is not amended, the federal government will need to borrow ever-larger amounts, which will jack up interest rates into the double-digit range over the long term, starving the economy of both investment and growth and leading to a period of economic stagnation that would make Europe look positively dynamic by comparison.
Already Bush administration policies point to a budget deficit in the neighborhood of $500 billion for 2003 and 2004. Once the costs of the Iraq occupation, the war in Afghanistan and the new federal drug benefit are factored in, this number will likely increase. White House math also assumes that growth will be robust, and while Stratfor concurs on this last point, it is a bit questionable to spend now on the assumption that strong growth in the future will allow you to pay for it.
Greenspan's issue with Freddie Mac and Fannie Mae, the two quasi-state mortgage behemoths, is only slightly less critical. The two firms' government-affiliated nature allows them to access capital at rates far cheaper than their fully private counterparts because of an assumed guarantee that they are too large and too important to be allowed to fail.
This has let them crowd out private competition. The two financial institutions already stand behind approximately $4 trillion in mortgages, around three-quarters of the total market. As with the Social Security issue, Greenspan was simply stating the obvious: Perhaps we should not concentrate our entire housing market in the hands of two firms that could cost twice the total federal budget to bail out.
A trillion dollars here, a trillion there, and pretty soon you are talking about some real money.
Within 36 hours, Greenspan -- by doing no more than stating the obvious -- has infuriated Democrats, the Bush administration, pensioners, developers and real estate agents. He is our kind of banker.
A registered Republican, Greenspan has gone well out of his way to maintain a low profile and avoid political debates. That characteristic – combined with a 17-year tenure as chairman in which he has managed the longest economic expansion in U.S. history -- has given Greenspan sufficient gravitas to rank in the same category as the Lincoln Memorial. He is simply a respected part of the Washington landscape. Within the financial community, his precognitive powers and steady hand have earned him the status of a quasi-deity; the markets tremble nervously when he goes in for his annual physical.
The Federal Reserve chairman must be appointed -- or reappointed – every four years by the president and confirmed by the Senate. Greenspan's current term expires this summer, and his reappointment must happen before general and presidential elections in November.
This raises two possibilities: Either Greenspan is so confident of his track record that he feels he can speak his mind, or he is planning to retire and simply does not care about the backlash. The first would leave the bulk of the business community grinning fiercely; the second would set off a general panic.
Regardless of which is true, the point is that Greenspan just set down in no uncertain terms what he believes are the two largest obstacles to long-term U.S. economic growth -- smack-dab in the middle of election season.
He also happens to be right.
Greenspan's solutions are elegantly simple: Cap the mortgage firms' debt levels so that the market can diversify; cut benefits to retirees. Endorsing them, however, would be political suicide, since it would result in a mass defection of the politically powerful American Association of Retired Persons (AARP) to other candidates, as well as act as a brake on the red-hot housing market that helped mitigate the recent recession.
Ultimately, U.S. military, cultural and political power is based on the breadth, depth and stability of the U.S. economy. Money breeds power and influence, attracts the best of the world's minds and allows for useful things like aircraft-carrier battle groups. Should current trends continue, the economy will weaken and something will have to give.
Greenspan's solution, politically impractical as it is, would forestall the need to make that choice. |
