Alan Greenspan

We are not sure what is more amusing: the Masetro's unwitting (and quite correct) observation that America is now nothing but a crony capitalist country, or his attempt to back out of what he said that so perfectly captures the essence of the failed corporatocracy currently raging in America. In the following exchange from a DemocracyNow interview, Greenspan is forced to respond to his quote from Age Of Turbulence on the definition of crony capitalism: "When a government's leaders or businesses routinely seek out private sector individuals or business, and in exchange for political support bestow favors on them, the society is said to be in the grip of crony capitalism. The favors generally take the form of monopoly access to certain markets, preferred access to sales of government assets, and special access to those in power." Greenspan's pathetic excuse is that while crony capitalism is a "dominant force" in some other regimes, it is "not the dominant force in this country." Perhaps all those who are fighting with the virtual monopoly granted to certain players, such as Goldman in fixed income trading, and Pimco in government bonds, would beg to differ. So yes, according to the Greenspan definition America is now nothing more than a crony capitalist society, which will only get worse as more and more power it granted to those who are believed to be able to ramp various asset classes, and thus the market in general, higher, because as Greenspan himself pointed out, nothing is as important a "driver" to the economy as the stock market: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here". In the administration's pursuit of Dow 36,000 to prove that all is well, America has given up on its core constitutional tenets, and is now nothing better than a dictatorial regime in some far-eastern backwater country.

Alan Greenspan, the Chairman of the Federal Reserve from 1987 to 2006, was more directly responsible for the current Global Depression than even his worst critics realize. Here is the explanation why. —Gonzalo Lira.

For the definitive confirmation that the Fed is and has always been very open to, at least philosophically, pushing the market higher no matter what the cost (if not in practice - they would never do that, oh no, Liberty 33 would never stoop so low), is this quote from former Fed chairman Alan Greenspan who was on Meet The Press earlier, where he said the following stunner: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here." In other words, the Fed's dual mandate of maximizing employment and promoting a stable inflation rate have been brushed aside, and the one and only prerogative for Chairman Ben currently, and for the short and long-term future, is to keep the Dow Jones (because nobody in the administration, even the Fed, has heard about the S&P yet), above 10,000. Yet Greenspan, who now apparently is off the reservation concludes with this stunner: "There is no doubt that the federal funds rate can be fixed at what the Fed wants it to be but which the government has no control over is long-term interest rates and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment there is no sign of that because the financial system is broke and you can not have inflation if the financial system is not working." In other words, we will be in deflation until the broke financial system becomes unbroke... and then we will have hyperinflation. Well, ladies and gentlemen, Q.E.D.

The maestro managed to run away from the old folks' bent on monetary destruction home just long enough to carry this amusing interview with Bloomberg TV's Al Hunt. Tomes (will) have been written about Greenspan's dementia, just as books will be available on the Kindle one day analyzing his successor's massive mistakes which are slowly but surely leading to an American day of reckoning, so we won't comment much, suffice to point out some of the key highlights in Greenspan's presentation. Most amusingly, note the escalating battle between Greenie and the Fed's new vice-chairman Janet Yellen, who blatantly contradicted Greenspan's that higher interest rates would have prevented a housing bubble. For all it's worth, Alan's response is actually quite interesting: "We tried to do that in 2004. We ran into a conundrum. For decades, every time the Fed raised its short-term rates, the 10-year note, which is really the proxy for mortgage rates, the yield went up with it. This time, it did not. And the reason it did not, is you cannot have the 10-year note determined both by arbitraged global finance and individual central banks. As a consequence of that…starting in the period where the sensitivity of the early stages of the bubble were building up, it was very clear that what was determining the rise in prices was movements in long-term mortgage rates going down, not the federal funds rate." In English, this is quite intriguing: China, which at about this time started running up massive trade balances, essentially became indifferent about US monetary policy, as it gobbled up everything east of 5 Years, with a preference on the 10 Year. The reason for this is the US consumer became the one driving force behind the massive Chinese economic expansion. With the consumer out, and with China set to report its first trade deficit in 6 years, and the Fed pulling out its support of mortgages, and the Chinese National Bank pulling liquidity, the move in 10 Year over the next few weeks is now more critical than ever, which is why the 10 Year - 30 Year MBS spread is paradoxically pressured at an all time tight spread, as all the early MBS shorts are covered, forcing pundits to say MBS are cheap as fighting momentum in this market is professional suicide. To be sure, this technical push down will soon end. And when this last coiled spring blows out, watch out below, first in housing, then in rates, in corporates, and last, in equities.

Just as Wall St. Cheat Sheet can give credit where and when it is due, so it can dispense jeers with impunity. And aside from his current replacement, we can't think of one person more deserving of this most recent "award." Yet we can not wait for the next iteration, because while the Maestro is merely alkaline, Uncle Ben is pure, concentrated lithium.

"Not only would use of the Reserve Banks for funding the BIF serve no apparent economic purpose, it could create potential problems of precedent and perception for the Federal Reserve. In particular, the proposal involves the Federal Reserve directly funding the government. The Congress has always severely limited and, more recently, has forbidden the direct placement ol Treasury debt with the Federal Reserve, apparently out of concern that such a practice could compromise the independent conduct of monetary policy and would allow the Treasury to escape the discipline of selling its debt directly to the market. Implementation of the proposal could create perceptions, both in the United States and abroad, that the nature or function of our central bank had been altered." - Alan Greenspan, 1991