Hey… That rascal, Alan Greenspan, is back in the newspapers. And this time he has something sensible to say:
“The emerging fight over the future of the welfare state, a paradigm without serious political challenge in eight decades, is accentuating the centre’s declining. The welfare state has run up against a brick wall of economic reality and fiscal book-keeping. Congress, having enacted increases in entitlements without visible means of funding them, is on the brink of a stalemate…”
Let’s back up to bring Dear Readers fully into the picture. Alan Greenspan came to Washington in the ’70s…to join Gerald Ford’s Council of Economic Advisors. But he arrived with some very unusual baggage. Accompanying him at his swearing in ceremony was none other than Ayn Rand herself, who said that Greenspan was her “man in Washington.”
Greenspan was a member of her “collective” in New York, a group of anarcho-libertarian-randites who got together and argued about how to build a better world order. They were in agreement about the basics – government had to be cut down to size. And governments’ paper money had to be replaced by gold.
Greenspan wrote a famous defence of gold, pointing out that paper money was merely a way of stealing money from the people. You would think that would have disqualified him from taking over the top job at the Fed. After all, America’s central bank was charged with promoting and protecting the value of its paper money. And after 1971, that was no easy mission; the dollar had no real value at all.
But Greenspan was a great schmoozer…and somehow he schmoozed his way into the executive branch…and then into the Fed. He was on the job at the Fed when America’s finances started to spin out of control. As a share of GDP, financial sector debt doubled on his watch. Each time, the economy threatened to come to its senses, Greenspan gave it more credit. In emergency of the recession of 2001, Greenspan cut rates below the level of consumer price inflation – and left them there for years. This was not exactly what you would have expected from a hard-money Randite. Instead, you might have expected him to “pull a Volcker,” protecting the nation’s money…and its financial integrity, even at the cost of his own career. But Greenspan had long since left his friends, his integrity and his beliefs behind (Ayn Rand died on his birthday).
The emergency low rates lasted much longer than the emergency. But 4 years later they had created another emergency – the housing and finance bubble – which blew up in 2007. By then, Alan Greenspan had retired.
Since then we have heard from him from time to time. Usually, his newspaper columns have been little more than weak apologia and lame denials. He claimed, for example, that the bubble in housing was invisible…when we Dear Readers saw it very clearly…and that there was nothing that he could have done to stop it.
But now Alan Greenspan has a new theme. And we are wondering whether it is not time to reappraise his career and his character.
He now sees with both eyes. “We face a revolution,” he says. “Arithmetic demands it.”
Whence cometh this revolution? The young have no jobs. The old have no savings. The middle class is becoming more and more desperate. The Wall Street Journal:
More aging Americans are doing something they never would have imagined: turning to family for financial aid. Some are even asking their children for a place to live.
The problem has been building as more Americans 55 and older have lost jobs or run through savings faster than expected.
39% of adults with parents 65 and older reported giving parents financial aid in the past year, according to a September Pew Research Centre survey. Some parents may have trouble acknowledging it: 10% of parents 65 and older reported receiving aid.
The arithmetic that demands a revolution is the arithmetic of a broke welfare state. It makes promises, based on assumptions of growth and prosperity. Now, with neither growth nor prosperity at hand, the politicos wonder how to make good on the promises.
They talk about raising taxes. But no serious observer thinks they could raise enough new money – net – by increasing taxes in order to forestall bankruptcy.
They borrow money too. But the end of that must be approaching too. The average debt level among OECD countries is over 400% of GDP. At a real interest rate of 5%, one dollar of output out of every 5 must be applied to debt service. That is as if every Monday’s work had to be devoted to the dead, rather than the living.
In Europe, all around the periphery, lending rates are edging near the point where lending has to stop. In America, fear of Europe keeps lending rates – for the US government – low. But the more it borrows, the deeper its hole becomes. For the more it owes the less likely it will be to pay it back.
And sooner or later lenders are going to realise that buying debt from the world’s biggest debtor – who continues to borrow more and more money it cannot pay back – is not a great way to preserve capital.
Let’s see. Can’t tax…can’t borrow…then, what can the feds do to pay their bills and honour their commitments? Print money!
Yes, dear reader. That’s what it will probably come to. That is the endgame of paper money schemes. And when the government prints money…as in Zimbabwe or Argentina…or Weimar Germany…all hell breaks loose.
It makes us wonder. What if that were Alan Greenspan’s plan all along? What if he really were Ayn Rand’s man in Washington? What if he intended to bankrupt the US government, by setting up a financial calamity?
Maybe he knew it was inevitable anyway. Maybe Greenspan figured that it was easier to go along with it than to fight it…and that it took him where he really wanted to go – towards the collapse of the paper dollar and the Big Government of the USA.
What if Alan Greenspan weren’t such a scoundrel after all?
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