As if to thumb his nose at the millions of Americans who have undergone long-term financial distress since the late 1990s due to the interventionist monetary policies he implemented, former Federal Reserve Chairman Alan Greenspan, the original engineer of the Fed’s bubble/burst economic paradigm, indirectly admitted to CNBC’s Kelly Evans that the Fed has created unsustainable asset bubbles that could burst when it allows interest rates to rise.
“Mr. Bubble” defended the Fed’s promotion of these bubbles, though, stating though a smile, “It’s good, not bad”:
Greenspan noted that the Fed has been juicing the markets primarily because business investment has been weaker than it has been for any extended period of time since the Great Depression:
And, when asked if this period of asset bubbles will end as badly as the tech and housing bubbles did, Greenspan concluded:
We’re not yet there in a position where it’s crisis. However, the real issue here is going to be when interest rates start to move up.
That’s quite an (unintended) indictment of interventionist Fed policy. On one hand, Greenspan stated that the Fed has inflated asset bubbles, and, on the other hand, stated that the bubbles could burst when it allows interest rates to rise.
But, remember, Greenspan asserted that the bubbles are “good, not bad” because business investment has been so weak. The Fed, according to the former chairman, has therefore been inflating bubbles to promote the expansion of the sluggish Main Street economy. The data, however, say otherwise. There’s a preponderance of evidence that suggests that the Greenspan-Bernanke-Yellen Fed has been pumping torrents of liquidity over the last decade-and-a-half to stimulate Wall Street at the detriment of Main Street, as evidenced by the following charts. (Tap to enlarge explanations in the captions.)
The evidence is pretty compelling. The Greenspan-Bernanke-Yellen Fed has almost certainly been pumping torrents of liquidity since the latter part of the last millennium to promote the expansion of business on Wall Street, not Main Street. But, even if Fed has had the interests of Main Street in mind when inflating bubbles (I don’t know how they possibly could given charts like those), the fact of the matter is, Greenspan started the destructive Keynesian tradition of pumping liquidity to stimulate the economy, and this tradition has created significant economic pain for Main Street in the form of long-term unemployment and underemployment, reduced wages, foreclosures, bankruptcies, reduced savings rates, shuttered businesses, and drained savings and retirement accounts. So, “Mr. Bubble” inferring that the Fed creates unsustainable bubbles for the benefit of Main Street is pretty insulting.
Perhaps even more insulting, Greenspan concluded that business leaders have been hesitant to make capital investments due to a number of external factors, none of which is the bubble/burst economic paradigm he created. Just minutes after indirectly admitting that the Fed has inflated unsustainable asset bubbles, Mr. Bubble implicated entitlement spending, tax rates, global warming, and instability in the Middle East as reasons for lack of business investment.