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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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From: russwinter	2/16/2005 2:01:30 PM
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Senator Outfoxes Veteran 'Economist' by Arthur Radley, Wednesday February 16 2005 Senator Sarbanes (D-MD) just did a fantastic job of skewering Al 'Leeson' Greenspan. First he quoted Leeson's absurd statement from 4 years ago, during the 'surplus bubble' era, about paying down Treasury debt on a 'glide path to zero.' Sarbanes pointed out that projections of a $5 trillion ten-year surplus then have mutated into a $4 trillion deficit now ... a $9 trillion deterioration. Leeson sat mutely with such a sickly smile on his hangdog face, that he resembled a boy caught with a Playboy magazine in his left hand and his trousers around his ankles. Sarbanes didn't even need to twist the knife. You could see in Leeson's humiliated face that getting caught up in the politicians' loony 'surpluses forever' mania had to be one of the most embarrassing lapses of his entire career. Sarbanes then questioned why, if inflation is 'contained' as Leeson affirmed, the Fed is raising the Funds rate time after time. Leeson replied that the Fed had intentionally slashed the Funds rate to an 'excessively' accommodative 1.00% in response to 'deflationary' forces such as the fall in the stock market and the economy during 2001. Leeson publicly confirmed that the Fed leans against stock market declines with easy money. He went on to say that the recent rate rises have nothing to do with the economy -- they are simply a removal of excess accommodation. And he observed that the markets are taking it okay, so it's not a problem. Finally, Sarbanes asked whether there is a 'normal' rate of interest. Greenspan said there is, but it constantly changes, and only the FOMC can figure out the 'normal' rate of interest at any given moment, using their superb technology. He declined to specify the number, though. Leeson's preposterous smoke-blowing about the 'normal' rate of interest is an almost perfect analogue to the South Sea Bubble prospectus, seeking funds for 'an undertaking of great advantage, but no one to know what it is.'

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