Alan Greenspan Alan Greenspan: Nothing about Turkey or Pumpkin Pie
by Eric Fry
The Rude Awakening
Wall Street, New York
Thanksgiving Day, November 24, 2005 Eric Fry offers "thanks" to Alan Greenspan for the legacy of debt he's given to the US. ------------------------- - Live for today and don't worry about tomorrow – the
mantra of the penniless,
- The OTHER option when it comes to securing a future
in the money and,
- What kind of nation doesn't celebrate thanksgiving?
Hmmmm...
------------------------- [Joel's Note: "So you don't even celebrate thanksgiving in
Australia?" Asked our incredulous new friend on the New
York subway. "No. It may also fascinate you to learn that we elect not
to celebrate the 4th of July, Veteran's Day and, to a large
extent, Halloween," your festively challenged junior editor
replied. "So what DO you do down there?" our new friend pressed. "We celebrate Australia Day on the 26th of January. We drive
(or walk) to the beach and throw down blankets, have
barbies and crack a cold beer with friends and family.
"This is what is great about being an Aussie," we say. "Sounds like a decent time, I guess," our subway mate
acquiesces. "We also have Anzac (Australian New Zealand Army Corps.)
day – a day when we remember all the 'diggers' who gave
their lives for us on the infamous beaches of Gallipoli.
It's similar to your veteran's Day," we offer. "And how do you celebrate that one?" Our friend is becoming
enthused by such strange, antipodean rituals and holidays. "In much the same way as we celebrate Australia Day
actually...and Melbourne Cup day and Christmas Day too,
come to think of it." The train pulls to a stop at 59th Street Station. We mention
that this is our stop wish our friend a happy Thanksgiving
Day. "And a happy Australia Day to you too..." comes the well-
intended reply. Hhhmmmm... Someone who knows all about American holidays, hailing from
this great land himself, is Eric Fry. That said, his next
missive has nothing at all to do with cranberry sauce and
pilgrims. There is nothing festive about Greenspan's legacy
of debt. Read on below before... --- Advertisement --- Only 4 days left for 4-minute profits with Kevin Kerr's
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By Eric Fry Today marks the 18th Thanksgiving of Alan Greenspan's reign
at the Federal Reserve. This day also coincides with an 18-
year high in the price of gold. Perhaps there's a
connection. Most Americans, if they were to give any thought to Alan
Greenspan this Thanksgiving, would wish to thank the
"Maestro" for orchestrating our bizarre breed of
prosperity. We would thank him for enabling us all to shoehorn
ourselves into lifestyles that our incomes alone could
never support. We would thank him for enabling us to buy
homes we could never afford, to lease cars we could never
dream of buying, and, in general, to spend vastly more
money than we could ever spend if we were forced to rely on
what we earn rather than what we borrow. Thanks to Alan Greenspan, Americans can walk out of any
bank in the land with more dead Presidents than a
successful robber. And we can do it as often as we
like...without ever having to pull a stocking over our head
or to split the take with a "wheelman." In theory, we must
repay the money we take. But no one ever does. \ Alan Greenspan: Free Money! What did Mr. Greenspan do, exactly, to elicit the adoration
of an entire nation? Not much, really. He simply flipped a
few switches here, and nudged a few levers there...and
before you know it, he had pushed short-term interest rates
so low that borrowed money seemed like free money. And
since it was free, why not take it and buy
something...anything? Armed with our free money, we could
pay any price for any asset and come away a
winner...almost. Meanwhile, Greenspan's tiny little interest rates tortured
the nation's few remaining savers. At first, they bit the
bullet while their CD rates plummeted from 7% to 5% to 3%.
But when CD rates dropped below 1%, the pathetic, maligned
savers could endure no more suffering. As the agony of lost
opportunity became too much to bear, they joined their
binge-borrowing compatriots in bidding for stocks, homes,
second homes, third homes, beanie babies...and any other
asset that promised to return something more than 1% per
year. Thus, Greenspan's tiny interest rates encouraged all
Americans to borrow and speculate, or to borrow and
consume...or simply to borrow for no particular reason. And
once they had borrowed, they never worried too much about
what their balance sheets looked like. "[Eventually], Americans embraced new ideas and attitudes,"
observe Bill Bonner and Addison Wiggin in their new book,
Empire of Debt, "People switched their attention from
assets to cash flow, from balance sheets to monthly
statements, from building long-term wealth, to paycheck to
paycheck financing, from saving to spending and from 'just
in case' to 'just in time.'" The Chairman of the Federal Reserve beheld his handiwork,
and he saw that it was good. "Out of convenience, rather than ideology," Bonner and
Wiggin continue, "Mr. Greenspan came to see goodness in all
manner of credit. Since he became head of the Federal
Reserve system, debt levels rose from $28,892 for the
average family in 1987 to $101,386 in 2005. Mortgage
foreclosure rates, personal bankruptcies, and credit card
delinquencies rose steadily and are now at record levels.
Mortgage debt rose $6.2 trillion during his tenure at the
Fed. By January 2005, it had reached $8.5 trillion, or
approximately $80,849 per household. But none of this
seemed to bother the chief of America's central bank..." Sign Up for The Rude Awakening Start your mornings off with a dose of Rude news. The Rude Awakening is dedicated to highlighting phenomena in the financial markets that others may not see. Let the Wall Street Journal and the New York Times "break news." Sign up FREE Today! We will not share your email address with anyone else, period.
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Borrowing and spending, when conducted in concert with one
another, tend to inflate asset values, while also inflating
personal liabilities. As a result, the populace becomes
asset-"rich" but cash-poor. Unfortunately, assets also DE-
flate. Liabilities do not. And when assets deflate, asset-
rich economies immediately begin to feel genuinely
poor...because they are. Alan Greenspan: A Faustian Bargain for Low Volatility "Although it is true that under Alan Greenspan's command of
the Fed the U.S. economy has experienced unusually low
volatility," observes Paul Kasriel, Chif Economist of
Northern Trust, "this low volatility may turn out to have
been a Faustian bargain. That is, the low volatility was
achieved by increasing the indebtedness of the U.S.
economy, especially the household sector, to record levels.
And increasingly, the debt is owed to foreign entities, not
ourselves." The charts below illustrate aspects of record U.S.
indebtedness. (The areas to the right of the vertical lines
through each chart denote Greenspan's tenure as chairman of
the Federal Reserve). Record household borrowing has led to
record household leverage, while household liquidity is
near record-lows. 
...
Kasriel concludes: "The potential adverse consequences of Greenspan's legacy
of debt are: - McMansions and SUVs will not make us more productive
in the future. - Foreign creditors could start to question how we will
be able to pay future interest and dividend payments
without resorting to "printing" dollars. - If foreign creditors should question our ability and
willingness to repay them without resorting to the
currency printing press, there could be a run on the
dollar. - A run on the dollar would lead to sharply higher U.S.
interest rates. - Sharply higher interest rates would do great harm to
household finances and the housing market. - A sharp decline in the housing market would result in
a spike in mortgage defaults. - A crippled banking system would render Fed interest
rate cuts less potent in reviving the economy.
Alan Greenspan: A Great Big Gold Rally But let's not end our Thanksgiving Edition with such
unhappy, dispiriting thoughts. Rather let's consider
another consequence of the "Greenspan legacy of debt:" A
great big gold rally. Thanks to the massive debts that Greenspan has nurtured
throughout his 18-year reign, he has advanced the demise of
the dollar's 90-year reign as the world's premium
currency...which is why gold investors have also learned to
love the Chairman. At $492.90 an ounce, the ancient
monetary metal has soared to its highest price since
December 14, 1987, when gold briefly pierced $500 an ounce
and finished the trading day at $495.50. Thanks to America's compromised economic condition, the
bull market in gold seems likely to soar through $500 and
many more $100-dollar increments numbers thereafter. From
the gold investor's perspective, therefore, the "Greenspan
legacy of debt" will be a gift that keeps on giving.
Happy Thanksgiving! [Joel's Note: Although the slide is imminent (some would
argue it is already underway) you don't have to be taken
down with it. Kevin Kerr has delivered profits to his
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resource you can think of. You can bet on the U.S. economy,
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times your money. http://www.agora-inc.com/reports/VPI/EVPIFB22 ------------------------- And the Markets... | Wednesday | Tuesday | This week | Year-to-Date | DOW | 10,916 | 10,871 | 150 | 1.2% | S&P | 1,266 | 1,261 | 17 | 4.4% | NASDAQ | 2,260 | 2,254 | 33 | 3.9% | 10-year Treasury | 4.47 | 4.43 | -3.00 | 4.43 | 30-year Treasury | 4.70 | 4.66 | 3.00 | 4.65 | Russell 2000 | 683 | 683 | 11 | 4.8% | Gold | $492.87 | $494.70 | $7.07 | 12.6% | Silver | $8.12 | $8.18 | $0.07 | 19.2% | CRB | 314.38 | 315.50 | 1.64 | 10.7% | WTI NYMEX CRUDE | $58.71 | $58.82 | $2.57 | 35.1% | Yen (YEN/USD) | JPY 118.74 | JPY 118.80 | 0.39 | -15.8% | Dollar (USD/EUR) | $1.1815 | $1.1814 | -43 | 12.8% | Dollar (USD/GBP) | $1.7238 | $1.7219 | -58 | 10.1% |
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