We live in an age of economic shocks, or an Age of Turbulence if you ask Alan Greenspan. Households have been encouraged to take on record amounts of debt during an historic low in interest rates. Now, as interest rates are set to rise, the value of assets purchased with debt will fall. There are going to be an awful lot of very upset former homeowners in the Anglo Saxon world.
It’s especially vexing when the “surprise” interest rate shocks come from central bankers themselves, the men who are charged with maintaining price stability. They seem to be doing anything but maintaining stability lately. What gives?
To answer that question, we point you to an interview Alan Greenspan recently did with American comedian John Stewart. Greenspan was accidentally candid in answering Stewart’s fundamental questions. Greenspan casually revealed the great swindle that is modern central banking.
Stewart asked: Why, if Wall Street celebrates free markets, is there no free market in money? Why is the price of money set by bankers at the Fed and not the market?
Check out the full video below:
Greenspan’s answer to Stewart is that under a gold standard, the world felt “strangled”. What that really means is that under a gold standard, governments cannot print money or inflate away the value of debts by increasing the money supply. This means governments are not able to pay for wars with a printing press. It’s no wonder that both World Wars broke out once the gold standard was abandoned.
Greenspan also sheepishly acknowledges that by lowering rates to please stock investors, the Fed punishes savers, who face lower interest rates on bank deposits. If the agency in charge of preserving the purchasing power of your money actively discourages you from saving, how can you be surprised when people accumulate debt instead?
What Greenspan gets absolutely right is that human nature has not improved one whit in the last 5,000 years. Fear and greed are still the basic emotions that drive markets and drive decisions. Does it pay to be fearful today? Or is it time to be greedy?
Markets and Money