After years of assuring the public that oil prices would fall, Alan Greenspan has recently changed course and is now assuring us that that $50 plus oil really isn’t a problem after all. Yesterday he feigned the same worry-free attitude toward the enormous levels of household debt, or the possibility that dramatically elevated national real estate prices could decline.
In reality, the one thing almost as disturbing as the enormity of the economic calamities threatening America is Greenspan’s failure to acknowledge their existence. After all, how can he not be worried? He’s our central banker, its his job to worry! Even if he actually believes these situations to be manageable, he should at least worry about the possibility of his being wrong.
Only one of two explanations exists. Either the Fed Chairman lacks the competency to worry about these obvious problems, or he is so worried that he feels compelled to deny his concerns, for fear immediately precipitating a crisis that he knows is ultimately inevitable. Given that the Chairman is too smart for the former, he now reminds me of Henry Blodget, Merrill Lynch’s infamous Internet analyst, who, as the bubble he helped create began to deflate, refused to worry. Instead he encouraged his foolish followers to keep on buying, right up to the point where many of the companies he championed filed for bankruptcy.
In fact, the last time I remember Greenspan being concerned was during the late 1990’s, when he claimed to be worried about the potential “problem??? of the Federal Government paying off the national debt too fast, creating a shortage of treasuries, or resulting in the U.S. government buying up corporate America. With that track record, it’s clear that when it comes to what to worry about, Greenspan is clueless.
Yesterday, we learned that foreign private investors sharply reduced their purchases of U.S. financial assets. Most economists now agree that the only thing separating the dollar, and therefore the entire U.S. economy, from financial oblivion, is the continuing robust support of Asian central banks. In the absence of such intervention, Greenspan would be forced to increase U.S. interest rates significantly to attract private buyers. Given his lack of concern for high debt levels and the risk of a housing bubble, Greenspan is on the horns of a real dilemma. Either he allows the dollar to collapse, (which given today’s sharp decline it appears to be on the verge of doing) and hyperinflation to ensue, or he deliberately brings to the forefront the very problems that he claims do not concern him.
At this point, anything that Greenspan says should be dismissed as pure propaganda, designed to delay the inevitable. Contrary to Greenspan’s complacency, I leave holders of U.S. dollars, or dollar denominated financial assets, with the following words of advice, “Be worried, be very worried.???