The economy slowing down? Cut interest rates. Momentary market panic? Flood the market with liquidity. The economy (as measured strictly by GDP) slowing down again? Cut interest rates some more. GDP booming? Very very very slowly and predictably raise rates—then cut ‘em again the instant the GDP looks like it’s starting to slow down.
This was, in a nushell, what Federal Reserve Chairman Alan Greenspan did, during his tenure at the Eccles Building: Greenspan subsidized money for the sake of gaming a single metric, the GDP.
Everyone knew it, by the way. There was even a name for it: The Greenspan Put.
For such an avowed free-marketeer, Greenspan was quite the Socialist apparatchik: Rather than allow the market to dictate the price of money, he subsidized it like a Socialist Pricing Board. And just like a Soviet apparatchik of old, Greenspan focussed on one number—GDP—irrespective of all the other subtle qualifiers that define a healthy economy.
The fucker was a Soviet goon—his Ayn Rand, “Free-Markets Forever!” bullshit was just for show.
The distortive effects that Greenspan’s money subsidy brought to the US economy are clear to all—serial bubbles: Dot-com, tech, bio-tech, CDO’s, real estate, and now Treasuries—all these serial bubbles were blown by the Fed’s relentless subsidy of the price of money.-The Causes of The Mess We’re In
Saturday, April 2, 2011
Blog of the Moment: Gonzalo Lira
Posted by Nick