RatcliffeBlog - Mitch Thinking Out Loud

Greenspan, the confusing Oracle

Greenspan, the confusing Oracle

Federal Reserve Chairman Alan Greenspan is making his semiannual appearance before Congress. On the one hand, he says he'll keep rates low for a long time, if necessary, indicating that he has no fear of inflation (and this guy is an inflation hawk), while simultaneously dismissing fears of deflation in the face of increasing business activity.

Here's the Chairman on the general state of things (see if you can find the good news the market guy I'll quote in a moment is crowing about): "To be sure, industrial production does appear to have stabilized in recent weeks after months of declines. Consumer spending has held up reasonably well, and activity in housing markets continues strong. But incoming data on employment and aggregate output remain mixed. A pervasive sense of caution reflecting, in part, the aftermath of corporate governance scandals appears to have left businesses focused on strengthening their balance sheets and, to date, reluctant to ramp up significantly their hiring and spending."

A few weeks of stability do not a recovery make, yet according to this CBS Marketwatch article: "Greenspan sees economy on cusp of breakout," said Tony Crescenzi, chief bond market analyst for Miller Tabak. [Let me hasten to remind you that crack-smoking weasels are everywhere.]

Greenspan goes on to say nothing about deflation, even though he's keep rates low to shore up the fact that prices are falling generally, lowering the incentive for business to make capital investments. He does mention deflation in the context of Japan, but only says Japan and Europe will benefit from a global recovery -- if Japan and Europe aren't part of the recovery, what "global" recovery is he talking about? Is there a Martian economy that is recovering across the board.

It's all very confusing. But, like the oracle at Delphi, you always have to wait and see wait the indistinct codes uttered by Greenspan really mean -- and then, only in retrospect.

I think that what Greenspan is doing is hedging, because the record deficits being run up by the Bush Administration are anti-Keynesian, flowing not to the consumer who might spend some of the projected trillion dollar hole Bush will dig between now and the 2003 election, but to the rich, who are playing it safe, just like the rest of us and pocketing the boondoggle. The economy is poised for higher "normal" unemployment and ever-tightening budgets for the poorest third of the population, which is bad for consumer spending in the short term and long run.