as a mild surprise was the premature announcement by President George W.
Bush of another term for Alan Greenspan at the Federal Reserve helm, ending
speculation about the White House plans after a rift over the need for new
Ari Fleischer commented, "The president thinks he has done a very able job
as a steward of the economy, making certain that we had the proper monetary
policies in place." Never mind that the Fed chief questioned the need
for Bush's $726 billion tax-cut plan, and back in February told Congress
the U.S. economy needed no new economic stimulus and warned of the dangers
of rising budget deficits. Ever since Bush’s decision for another four years,
the dominator man banker continues to warn that further proposed tax cuts
need to be offset by either spending cuts or tax increases elsewhere.
The slicing and dicing in the congressional conference process has the final
amount of tax-cut in question. But is there any doubt that the U.S. economy
is in dire need of economic stimulus? Only those who are living in a cave
or on the Riviera aren’t effected by a sluggish economy. Most people still
need to earn a living. That means a living wage job. So why are all the ‘so
called’ capitalists eager to keep the strong man for doing the heavy lifting?
Many of the answers lie in a desire for another round of irrational hopes for exuberance!
When Greenspan first expressed his concern about irrational exuberance, on
5 December 1996, the Dow Jones index closed at 6,437. It was long after that
warning, on 14 January 2000, that the Dow hit the giddy height of 11,723,
before the US celebrated the new millennium with the bursting of the dotcom
Greenspan ignored the advice of a long-serving predecessor, William McChesney
Martin, which was to remove the punch bowl before the party got going. When
accepting his last offer of reappointment he also missed the chance to get
out while the going was good, so that some of the lustre has been rubbed
off his previously saintly image. McChesney Martin was chairman for almost
19 years and left in January 1970, just in time to avoid the currency and
oil crises of the 1970s.
Greenspan, or any Fed head, contrary to popular perception, is no more an
architect of prosperity than a president. But the oracle of the central bank
can engender conditions that can severely inhibit the normal course of wealth
creation. While juggling interest rates effect markets and redirects business
decisions, their setting are not instantly transformed into profit. Confidence
is the name of the game. A reasonable expectation that financial conditions
will generate ongoing and profitable commerce is the desired objective.
However, when the confidence becomes the game itself, the side show barker
relies on a craftiness to dupe the public. The bust in the dotcom bubble
didn’t bring reality back to earth or at home. The housing market, because
of the unprecedented low mortgage rate, has forestalled a consumer capitulation.
But the tricks of the trade are running out of gimmicks. The Federal Reserve
has no room to lower rates further. And even if they went to near zero, the
experience of Japan indicates that prosperity is built on more than just
virtual free capital.
Now that the Iraqi War is over, look to the foreign exchange markets for
a valid indicator of the actual condition of the U.S. economy.
“The euro rose to a new four-year high against the US dollar, trading above
US$1.11 for the first time since February 1999 as it continued a rally that
was interrupted by the war in Iraq . . . The dollar rebounded briefly during
the war in Iraq, sending the euro down to around US$1.05 in early March as
financial markets anticipated a quick US victory that would end the uncertainty
surrounding the war and even trigger a postwar dollar rally.”
Since government deficits are no longer able to be concealed or hidden, as
during the Clinton years, and spending has become the only growth industry,
the motive to devalue the dollar dominates the open market committee.
So this assessment from the previously quoted Guardian Column: “One of the
ways in which US policy makers are trying to get out of trouble is via benign
neglect of the dollar. During the boom years the dollar was overvalued for
a long period. It has been declining for some time now. As John Flemming,
Warden of Wadham College, Oxford, notes in Economic Comments (Leopold Joseph)
, ' A downward adjustment in the exchange value of the US dollar has long
been seen as being appropriate to switch US domestic demand from imported
goods to goods and services made at home.' "
“The problem about relying on dollar devaluation, as Flemming says, is that
'Japan and Germany are suffering from sluggish domestic demand and apparently
over-, rather than under-valued currencies'. When so many key economies seem
to need a devaluation there is a deficiency of demand in the system as a
whole. But Flemming sees little scope for a co-ordinated monetary expansion,
given that US and Japanese interest rates are already so low.”
The Federal Reserve is standing inside a house of cards, and all they can
do is to print more jokers. Alan is no Atlas and the weight of the world
is far too heavy to hold, let alone lift back up. As the ‘Greenspan Greenback’
becomes the currency of use in more foreign countries, colonies like Iraq
will transact their business in federal reserve notes. That translates into
more debt created currency, higher concealed inflation, more deficits and
additional pressure to raise interest rates. So why would the central Fed
want to preside over this exercise in dumbbell lifting?
Maybe huge changes are just on the horizon! A new Bretton Wood Agreement
ready for implementation? It wouldn’t be surprising to have The International
Monetary Fund take on an even more dominate function. How will the EURO correspond
with the U.S. Dollar and will the Federal Reserve expand their influence
and monopoly over the rest of the world? Only time will tell, but no matter
what transitions occur, the American taxpayer will pay even more. You can
bank on that!
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