The Most Wrong Thing I’ve Ever Heard

Phoenix Capital Research's picture

I’ve written
about our esteemed former Fed Chairman enough times for people to know my views
of the man. However, the Maestro recently let loose a statement on MSNBC that
absolutely MUST be read by anyone who wants to understand the general
philosophy at the Federal Reserve as well as why the US economy is so screwed
up.

 

Greenspan
said:

 

"if
the stock market continues higher it will do more to stimulate the economy than
any other measure we have discussed here."
 (on MSNBC’s
Meet the Press
).

 

The above
statement is simply extraordinary given its source. This statement confirms
what we have all suspected deep down all along: that Greenspan and the Ben
Bernanke (the latter was Greenspan’s protégé) believe that the US economy’s
focus is financial speculation.

 

In 1970, the
financial industry only accounted for 10% of S&P 500 earnings. By 2003,
this percentage had swelled to 31%. Put another way, by the turn of the century
the financial industry accounted for nearly $1 out of every $3 in corporate
profits.

 

Greenspan
and the Fed instituted policies that helped facilitate this. They:

 

§  Left
interest rates below the rate of inflation, punishing savers and forcing them
to speculate in riskier assets

§  Told
Congress to push back regulation allowing Wall Street to leverage up

§  Urged
the regulators to ignore derivatives and other financial products that they
themselves knew were dangerous and out of control

§  Thrown
TRILLIONS of dollars at Wall Street

§  Didn’t
give a hoot about incomes falling or the deterioration of other economic
metrics that impacted ordinary citizens everyday lives

 

Greenspan’s
admission also tells us why his successor, Ben Bernanke has chosen to combat
the Financial Crisis by implementing policies that largely benefit Wall
Street  (the speculators) and
punish Main Street (ordinary citizens). After all, if your primary focus is
making sure that the markets stay up, who are you REALLY helping, the retiree
with the 401(k) or the hedge fund trader who speculates aggressively using
leverage?

 

Folks, this
is the REAL “New Economy” Greenspan touted in the ‘90s: financial speculation.
Greenspan and pals never really believed that technology would increase worker
productivity. How could they? None of their policies actually benefitted
technology firms or induced entrepreneurialism.

 

Instead,
Greenspan and the Fed were trying to paper over the fact that the US had
outsourced its manufacturing base and incomes were falling along with
Americans’ standard of living. They fostering a credit bubble and maintaining
loose monetary policies so that Americans would use credit and financial
speculation to maintain the illusion that they were getting richer.

 

This is why
the Fed ignored the bubbles in Tech stocks and the housing market. It’s also
why the Fed continues to address the structural issues in the US economy
(incomes, consumer debt, etc) and instead are trying to blow yet another bubble
in the financial markets.

 

There are
different types of “wrongness.” There is the wrongness of simply having no clue
what one is talking about (for example, if someone asked Greenspan about
bubbles and he started talking about taking a bath) and then there is the wrongness of being intelligent, having a clue
about what one is talking about, but simply focusing on the WRONG goal/
strategy.

 

Greenspan,
in the above quote, has established in clear terms that the US Federal Reserve
is in the latter group. These folks can form clever theories and write erudite
academic papers, but they are focusing entirely on the WRONG goal. People do
not pay their bills from their stock picks, they do so from their incomes.

 

On top of
this, financial speculation is an extremely unfair practice in terms of the
parties involved. Even with discount brokerage rates, you’re starting own
LOSING money the second you establish a position courtesy of the brokerage fees
and commissions. Combine this with the fact most people don’t even make money
in the market (the buy and hold crowd can attest to this in the last ten years)
and it’s clear financial speculation benefits those on Wall Street a whole lot
more than those on Main Street.

 

And yet,
this is exactly the financial system Greenspan and Bernanke want. And I have no
doubt this New “Wrong” will turn out just as poorly as the “New Economy.

 

Good
Investing!

 

Graham
Summers

 

Ps. To join me for daily updates on the markets as well as more scathing reviews of the "powers that be," go to http://www.gainspainscapital.com/

 

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b_thunder's picture

Their  theory of stock market vs the economy is sort-of self-fulfilling prophecy.  When everything else fails, they hope that rising stock prices will make people feel "rich" again, will force them to (borrow and) spend more, which will in turn stimulate (chinese) industrial output.  And that will drive stocks even higher.  Basically, a virtuous circle (aka a self-fulfilling propjecy) of 1982-2000. 

But what should be first: the chicken or the egg?  the stocks or the economy?  If stocks market rallies before the economy, eventually it reaches the bubble territory, and collapses.  It's really not that different from the regular bom/bust cycle. 

However, the act of propping up the bubble, of extending and artificially inflating it with low interest rates - that is a crime that's been going on unpunished.

 

whatsinaname's picture

why 1982-2000 ? I'd say 1982-2010. 1982 was when the 401k stuff started. Sheeple continue to believe 401ks will lead them to comfy nest-eggs eh ?

Ripped Chunk's picture

401k has set the stage for 60+ million senior citizen to be dead broke at age 75 begging for assistance right before they are rounded up for orderly extermination.

Nice work Wall Street.

Get all those pension liabilities off the books of all the big corps. Invite the little guy to the table, build him up, then kick the chair out from underneath him and piss all over his head.

NotApplicable's picture

You forgot the PBGC (a "federal corporation"), who will take on all pension liabilities.

Then proceed to hand out coupons for dog food (or perhaps soylent green).

Ripped Chunk's picture

PBGC covers Defined Benefit Pensions not 401k's

Your 401k becomes worthless you have no recourse other than to learn guitar or violin and go stand in the subway and play.

Great website though. Love the old fellow and the American Flag..........

Eally Ucked's picture

He's not only thinking about stocks, his real worry is GDP! Just imagine that financials shrink to proper size, as it supposed to be. GDP would shrink like crazy and there is nothing to replace them with. All calculations of debt/GDP and other ratios would go sky high, dream of biggest economy in the world would disappear and even in the wildest dreams nobody would've been able to say that US is still in no bad financial situation.

snowball777's picture

Yeah, YOU thought it was RAIN!

williambanzai7's picture

Who are your real enemies, Javier and Jesus, the illegal aliens that mow your lawn because your kids are too busy with facebook, or Greenspan, Bernanke, Blankfein et al, who put your next door neighbor into foreclosure so your property is now deeply underwater?

Yet we are all looking forward to months of noise about the great immigration issue.

We need to string the fuckers up!

snowball777's picture

We need not subscribe to their attempts at misdirection. Simple laughter and a concerted effort to hire an illegal once in awhile will bring victory over hatred and ignorance (why they don't want someone to come share the govt debt load with them is beyond me).

 

AnAnonymous's picture

The US has got richer. It is not an illusion.

 

An illusion was sold indeed. The illusion that every working person could  afford to live into an ever growing richer place. This is where the illusion is.

What is happening now is absolutely no surprise.

Here are (part of) the lyrics by the pop music band ABC in the song "how to be a millionaire" (1985)

I've seen the future, I can't afford it
Tell me the truth sir, someone just bought it
Say Mr. Whispers, here come the click of dice
Roulette and blackjacks, gonna build us a paradise
Larger than life and twice as ugly
If we have to live there, you'll have to drug me

 

 

 

http://www.youtube.com/watch?v=0NLDMJW_gpk&feature=related

 

No secret then. When people participate tothe process of enriching a peculiar area, not everyone in the participing population can afford the final output. Some participated but simply did not grow rich enough in the process to afford the final product.

It is the main force behind every currency melting. At one point in time, people can no longer afford living in the place they participate in building and look for breaking the wealth by debasing. An expected failure as debasing a currency does not change the fact the place grew richer. 

I've seen the future, I cant afford it.

 

Bartanist's picture

Worst case conspiracy scenario is that the central banks and their distribution arms, the large I-banks, only care about their power, control and a disproportionate lifestyle for those who do their bidding, whether banking, industry or government... (the king creates his lords as a reward for service).

In the kingdom, the serfs are initially seen as an infinite pool to be skimmed and taxed and taking a little bit from each serf to benefit the lords is expected and should not be a hardship.

The problem is when the serfs can bear no more (the prelude to the Robin Hood scenario) and the lords have to come up with "innovative" ways to maintain their ever increasingly expensive lifestyles. First they experiment with further taxes and notice that now they have welfare issues ... and then they hit upon payday loans, borrowing from the future as a way to keep it going. The government does this through borrowing on future tax receipts, but the banking/trading and insurance lords did this through derivatives. They pushed 30 years of future earnings onto their books and then distributed those future earnings in the form of fiat bonuses to all of the lords.

The question is what next for a population of lords that grew too large and could not sustain the ever increasing lifestyle on the back of the serfs?

AnAnonymous's picture

Robin Hood? Which one? Hood is among other things a modern myth, tailored to suit needs.

It suited British nationalism. It is all about a supposedly illegitimate authority being kicked by another authority that is legitimate because it is concerned by the troubles of little people.  It is all in the register "I am better than you, even if I am not"

Some people will always see an interest in aligning with stronger interests even if they are perfectly aware this will lead them to the ditch.

The 'lords' are no unity. So are the 'serfs'.

A Man without Qualities's picture

The stock market moving higher should be a confirmation that the other measures to improve the economy are working, i.e. it is a consequence of policy.  

Shoving the market higher telling people that earnings estimates from Wall Street desk monkeys and CEOs looking for a boost in which to unload stock, with no honest analysis of the downside risk in equities is a Ponzi scheme.  What I want to know is who the hell is going to be buying the stocks that the Baby boomers sell as they move into retirement?  The next generations are broke and have no spare savings to pump into stocks, so the proportion of investors who hold on margin will get higher, therefore loss tolerance will fall, therefore volatility will get worse and worse.

My take is they will to anything and everything to prove that the recent stimulus measures worked and they are looking at a time horizon measured in months.  We need people to consider how to fix the imbalances in the economy, and society, in the longer term, but these guys wont.

dcb's picture

I think he knows it is full of shit. But like the Iraq weapons of mass destruction, and 1984 you repeate the false statement often enough and it becomes true. greenspan worked on wall street. so to him tocks going up really helped him and his friends more than anything so he believes it.

HCSKnight's picture

The equites are the hand they want the unwashed masses to watch.  It's not where the trick is taking place.

Your point also begs the question, what are their underlying beliefs that justify in their mind the fleecing of others?

HCSKnight's picture

The equites are the hand they want the unwashed masses to watch.  It's not where the trick is taking place.

Your point also begs the question, what are their underlying beliefs that justify in their mind the fleecing of others?

Handle with care's picture

They're social Darwinists who genuinely believe that the strong feeding on the weak is the way to build the best of all possible societies.

 

Of course, they have the luxury of maintaining this belief because they are in the minority.  If the majority held this belief their necks would be the first to be snapped in the ensuing anarchy.

 

And I've yet to hear any of them applaud their maid stealing their watch as an example of the smart and aware winning over the dumb and careless.

three chord sloth's picture

I don't think they are social Darwinists as much as they are academic elitists.

The old school social Darwinists believed in building empires of industry. Whether the industry was based on brains or brawn didn't matter. And the old school believed in a life-long competition (meritocracy).

These guys today only want a certain type of empire of industry; the brain-based ones, and will actively work to undermine and destroy any non-intellectual based industry as it represents an alternative seat of power outside their comfort zone. Look at what they've done to manufacturing, mining, energy, etc... They want the barons of business to be people like them, with the correct beliefs and the correct degrees from the correct universities and will restructure government, society, and the law to make it so... even if it hurts the nation and its citizens.

They also don't believe in meritocracy (though they pretend they do), they believe in credentialism, which is a meritocracy for the first quarter of your life. After the degrees are awarded, then it becomes an insider/outsider game.

Its called The Rise of the New Class (or the Creative Class) and, as their name suggests they are highly class conscious. They combine the worst of the robber barons with the worst of an aristocracy.

I think every problem facing America is a symptom of the rise of the New Class and its mismanagement of the nation.

(For a quick overview of the New Class read this intro [http://www.telospress.com/main/index.php?main_page=news_article&article_...] to Telos magazine's Spring 2010 issue. It's pretty good, though the author makes the mistake of viewing the New Class as a meritocracy, and doesn't seem to notice the post-graduation shift into credentialism [albeit with some meritocratic competition within the credentialed insiders group].)

NoVolumeMeltup's picture

The goblin needs to do himself a favor and get in the goddamn box already. Otherwise he's liable to get the John Law treatment at some point.