Today after watching Indian Markets collapse and volatile US Futures and European Markets, I feel how bad the position of assets has become worldwide. The BSE Sensex touched four digits and we saw nine handle on it which no one(except some like me) in his widest dream would have guessed a few weeks back! In fact the down swing may be too much but the primary bear market is still far from over.
For a change, let me present here a piece from Bill Bonner's "the Daily Reckoning" newletter in which he presents a hypothetical "letter"from the well known last Fed Chairman Alan Greenspan:
I, Alan Aurifericus Nefarious Greenspan, Chairman of the Federal Reserve
Bank, holder of the Medal of Freedom, Knight of the British Empire, member
of the French Legion of Honor, known to my peers as the “greatest central
banker who ever lived,” (I will not trouble you with all my titles. I will
not mention, for example, that I was the winner of the prestigious Enron
Prize for distinguished public service, awarded on November 1, 2001, just
days after Enron began to collapse in a heap of corruption charges) am
about to give you the strange history of my later years.
For I will dispense with childhood...even with young adulthood, and those
dreary sessions with that terminally dreary woman, Ayn Rand, who couldn’t
write a compelling sentence if her life depended on it. I’ll also dispense
with my own dreary years at the Council of Economic Advisors, and pass
directly to the time I spent as the most powerful man in the world. For
here are my real titles: Emperor of the world’s most powerful money,
despot of the world’s largest and most dynamic economy, and architect of
the most audacious financial system this sorry globe has ever seen.
Yes, I, Alan Greenspan, ruled the financial world. But who ruled Alan
Greenspan? Ah...I will come to that, and tell you how, while presiding
over the biggest boom ever I became caught in what I may call the “golden
predicament” from which I have never since become disentangled.
This is not by any means the first thing I have written. I have written
much over the years. But it was all written for a purpose, which only a
few were able to discern. Most readers foolishly saw the cluttered mind of
a dithering economist or the clumsy, stuttering pen of a professional
bureaucrat. Many listening to my wandering speeches and twisting sentences
thought that English was not my first language. They thought they detected
a faint accent, like that of Henry Kissinger or Michael Caine. They mocked
me as “incomprehensible” or “indecipherable.” They watched what they
thought was an obsequious bureaucrat squirm. They had no idea what I was
really up to and what I can only now reveal.
But they admired me, too. I knew it. Because they saw in me a kind of
genius...a Bernoulli of banking...a Newton of numbers...a Leibnitz of
lucre...a Copernicus of currency. My mind worked at such a high pitch,
they believed, that my thoughts were inaudible to most humans. They
counted on me to keep the great empire’s economy trundling forward. Little
(actually nothing) did they know of my real thoughts and designs.
But now, all has changed. Now, I can write clearly and speak the truth.
For now I am leaving my post. There is no further need for me to
dissemble; no further need for me to pretend to kow-tow before
Congressional committees; no further need to hide the real facts from my
employers and the American people. Now, I swear by the gods, what I write
comes from my own hand, and not from some overpaid, anonymous flack.
Some are born in crisis, some create crisis, and others have crisis thrust
Let me begin at the beginning. Scarcely had I settled into to the big
chair at the Fed when a crisis was thrust upon me. And it is true, I
responded in the conventional manner. There is no manual for central
bankers, but there is a code of behavior. Faced with a financial crisis of
any sort, a central banker’s first duty is to run to the monetary valves
and open them. This I did in 1987. I was new to the job and probably
didn’t open them enough. The U.S. economy lagged its rivals in Europe for
several years. My old boss, George Bush, the elder, lost his bid for
re-election in 1992 and blamed it on me. I resolved never to make that
mistake again. Faced with a slew of challenges, shocks, uncertainties,
crises and elections...ever thereafter, I made sure that every valve,
throttle, level, switch and sluice gate was wide open.
But it was on December 5, 1996, that I had my first epiphany. That was the
year that I made my celebrated remark about stock prices. I wondered aloud
if they did not reflect a kind of “irrational exuberance.” In truth,
whether they did or did not, I do not know. But what I came to realize was
this: 1) People, especially my employers, actually wanted prices that were
irrationally exuberant. And 2) they could become far more irrationally
exuberant if we put our minds to it.
I was 70 years old at the time. I had weaseled (why not be honest about
it?) my way to the top post by knowing the right people and by making
myself generally agreeable, and helpful, and by not saying anything anyone
could disagree with. That was the original reason for what the press
called “Greenspan speak.” My private thoughts remained mine alone. All the
public and the politicians got was gobbledygook, but for good reason.
They would not have wanted to hear what I really thought. So, I did not
tell them. For I knew well and good what generally happened when
politicians and central bankers got their hands on soft money and a
compliant central banker. I was not born yesterday. They use their control
of the money to cheat people. It is as simple as that. (I explained this
early on in my career; fortunately, no one bothered to read what I wrote.
Otherwise, I never would have gotten the job.) If central banking were an
honest métier, there would be no reason to have it at all. Private banks
could do the job better.
But people are ready to believe anything. Somehow, they think that a
collection of rich financiers and power-mad politicians got together to
create and run a central bank for the benefit of the people! Well, I’ve
got news: it doesn’t work that way. Money is only valuable when it is
rare. It is like stock in a company. The shareholder is happy to hold a
few shares. But imagine how he would feel if the company issued a few
million more shares. His own ownership of the valuable thing is diluted.
He would be cheated.
Likewise, an honest banker cannot dilute his depositors’ money. He cannot
create real money “out of thin air,” as if he were issuing new share
certificates, without cheating his clients. But that is exactly what
central bankers do. They issue a certain amount of currency. Then, they
issue more and more of it. So, the people who got it and saved it lose a
little bit of the value each year. In effect, the value is lost by the
savers holders and captured by the people who control the currency. It is
really a very simple swindle. Who but an octogenarian Fed chief, on his
way out the door, would have the courage to say so?
People today act as if they had invented money themselves. But money,
central banking, and currency debasing have been around a long time. In 64
A.D., Nero decreed that the number of aureus coins minted from a pound of
gold would increase from 41 to 45 (each coin would be about 10% less
valuable). The silver denarius, meanwhile, lost 99.98% in the five
centuries before the sacking of Rome. Paper sheds value even faster. The
dollar has lost 95% of its purchasing power since the Fed was set up to
protect it in 1913.
A successful central banker, in the age of compliant paper money, is one
who is able to control the rate of ruin so that the rubes don’t catch on.
A little bit of inflation, they believe, is actually healthy. Haven’t the
economists told them so? Issuing a little bit more money each year makes
people feel richer...so they spend more; they hire more people; they build
more houses. Everybody is happy. Everyone feels richer. What an elegant
fraud! It’s almost a perfect crime, because no one objects as long as it
is done right. (My replacement at the Fed, Ben Bernanke, specializes in
controlling the rate at which central bankers can steal from dollar
holders without getting caught. He says that if necessary, he’ll “drop
money from helicopters” should the currency fail to lose value fast
enough. I predict that there will be a lot of people who will want to drop
him from a helicopter...for reasons I will explain here.)
I return to my narrative. After I made my remark about “irrational
exuberance,” I was called into Congress. The politicians who confronted me
were the usual oafs and know-nothings. They made it clear that if I wanted
to hold onto my job, I would have to stop worrying whether asset prices
were too high; instead, I would need to do all I could to goose them up!
It was on that very day, I recall it well, that what I had previously seen
only in foggy theory came out into the clear, bright daylight of applied
No one wants honest money. No one. The politicians, bankers, investors,
voters, and householders – anyone with a voice in the matter wants “easy”
money. It is just too delicious to resist. (I wondered what kind of a
central banker would stand against them; he would need a backbone of
titanium like Paul Volcker, and a head as thick and hard as a vault.)
Debtors want a little inflation to lighten their burdens and put a wind to
their backs. Creditors want inflation to swell their asset values.
Politicians want to be re-elected. Businessmen want customers with money
to throw around. Is there anyone who doesn’t appreciate a little
And yet, of course, I always knew the answer. Easy money only works by
defrauding people into thinking they have more money than they really do.
Easy come; easy go. They get it; they spend it. Before you know it, you
have a boom. But people soon adjust their expectations. Prices rise to
catch up to new money. Debt levels increase, and with them come heavier
debt service costs. The magic fades. What can a central banker do? He can
do the right thing. He can “take the punch bowl away,” as my predecessors
used to say. But this is where the trouble begins. Take away the punch
bowl, and they begin punching you! I recall they burned Paul Volcker in
effigy on the Capital steps when he did it. They would have burned him
alive if they could have gotten their hands on him.
Why should I, Greenspan, suffer such a fate? No, it was not for me. This
was the “golden predicament” I faced. Yes, I knew well that the nation
would be better off if the punch bowl were removed, but I knew that I
would be removed too, if I did it. And I knew, also, that it would be just
a matter of time until the pressure for easy money would overwhelm any
resistance a Fed chairman could put up. No pure paper money system has
ever lasted. People can never resist the temptation to make the money
easier and easier...until it is so wobbly and woozy it falls on its face.
It’s better that it falls sooner rather than later. It’s better that the
lesson is taught now, rather than 10 years from now. It’s better that the
lean times come on the next man’s watch, not on mine! That’s what I owe to
old Ayn; she taught me who rules Greenspan – Greenspan! Ayn taught me the
number one rule: Look out for Numero Uno.
I remember it so clearly. I was sitting in a House committee hearing room.
My tormentors kept asking questions. I kept giving the kind of answers for
which I later became famous...answers that didn’t say anything. And I
thought to myself: if these lardheads want easy money, I’ll give them easy
money. I’ll give them the easiest money the planet has ever seen! I’ll
give it to them good and hard!
And so, I did.
Since I joined the Fed, outstanding home-mortgage debt has jumped from
$1.8 trillion to $8.2 trillion. Total consumer debt went from $2.7
trillion to $11 trillion. Household debt has quadrupled.
And government debt, too, exploded. The feds owed less than $2 trillion in
the second Reagan administration, a figure that had been almost constant
for the previous 40 years. But under my direction, the red ink has
overflowed like the Nile in flood – to over $7 trillion.
During the two terms of George W. Bush alone, the feds have borrowed more
money from foreign governments and banks than all other American
administrations put together, from 1776 to 2000. And more debt will be
added in the eight Bush years than in the previous two hundred. The trade
deficit, too, more than tripled since I’ve been at the Fed, from 150.7 to
756.8 billion, and will reach $830 billion in 2006. When I came to power,
the United States was still a creditor. Now, it is a debtor, with more
than $11 trillion worth of U.S. assets in foreign hands, a more than 500%
increase since 1987.
Who can argue with such a record? Who can compete with it? Who would want
But that is the smooth, perverse pleasure a cynical old man takes in his
achievements. I have practically ruined the nation, and I know it. If you
distributed the cost of the federal government’s programs, promises, and
pledges to the voters, along with the nation’s private debt, the typical
household, and the nation itself, would be broke. And yet, almost
everywhere I go, I am revered as a maestro...saluted as if I were a war
hero. It is as if I had won World War II all by myself. The same
numbskulls that wanted easy money 10 years ago, now praise me for causing
what they call “The Great Moderation,” as if there were anything moderate
about America’s borrowing binge.
Others say that my real legacy is that I finally “made central banking
work.” Yes, I made it work...just like it’s supposed to work, giving the
people enough rope so they could hang themselves. That’s what they’ve
done. Now, they dangle from a long rope of mortgages, deficits and credit
And I am delighted. Soon, people will be able to see how central banking
really works. And poor Ben Bernanke will get the blame for it. He and his
stupid helicopters...he almost deserves it.
I hope you enjoyed it...
Sincere credit to Bill Bonner of www.dailyreckoning.com