Alan Greenspan is back! After a solid two years worth of exceedingly well-deserved humble pie, the former Fed chairman is settling into his favorite role; the oracle of deficit hawks. Recently interviewed for the Wall Street Journal, Mr. Greenspan cautioned Congress about the need to adopt the Debt Commission recommendations in order to avert a “bond crisis”. Ayn Rand’s most successful protege even spoke of the need for tax increases to help close the gap, and the timing of this communication was of course perfect.
For the past thirty years, the Wall Street interests that run Mr. Greenspan (or perhaps are run by him), have trotted the sage old man of finance out whenever Congress and the media have needed a push in their direction. Always in search of new and more creative ways of distilling working class innovation and effort into Wall Street fees, people like Alan Greenspan have achieved unprecedented success at convincing Americans to be happy about giving up their financial futures. In today’s popular disguise, these folks are introduced as “deficit hawks”; avenging angels of fiscal discipline. When the hawks lose faith, Mr. Greenspan is there to rally the troops. As of the beginning of 2011, the hawks were definitely losing faith.
Republicans who claimed to have been given control of the House with a mandate for fiscal discipline, were only too happy in December to sign off on the deficit-building extension of the Bush tax cuts. Republicans who claimed a determination to only pass what could be paid for, have been only too happy to try and repeal the Affordable Care Act, an action that would add a quarter of a trillion dollars to the deficit. Even the anointed angel of Republican fiscal sanity, Paul Ryan, fell away from the faith in his haste to vote for the extension of tax cuts. Worse, when the erstwhile deficit hawk asked the CBO to score his deficit-reduction plans, he sent only the part that described the programmatic cuts, and excluded the section that described more tax cuts. Well none of this would do, not one bit.
As Republicans revealed (again) their true colors on debt and deficit (they don’t mind either if the twain support their own pet programs), the nation was becoming aware of the threats posed by the commission to Social Security. The privatization of Social Security and Medicare, the two programs funded by the “fair tax” known as FICA, is a central goal of the hawks. Such an action would drive trillions of dollars into the control of Wall Street every year; money that would fund billions in fees for bankers and brokers regardless of whether the portfolios were secure or not. With the hawks on the Hill losing faith, it was Greenspan’s job to play witch-doctor again, and whip up fear of impending fiscal calamity.
Alan Greenspan is very good at showing up to warn Congress of an impending calamity that threatens his friends; the nation as a whole he is not concerned with. Interest rates kept too low, a regulatory structure left to rot, asset bubbles clearly visible to competent economist; all of these threats to the working class of America went unannounced, and were in fact encouraged, by Alan Greenspan. Now, he warns us of a bond crisis. It is time, he says, for belt-tightening, lest inflation come around in a few years and erode the wealth of bond-holders. While stock markets soar on the strength of robust corporate earnings, “highly-paid” workers in public service unions must give up pensions, salary, or their jobs so that the wealth of billionaires will be secure.
We have seen this act before; the wild ride to the Old North Church, with Alan Greenspan in the role originally played by Paul Revere. It just isn’t grabbing me as much as the original flick did. Our economy still has close to 15% of its work force either unemployed or underemployed. Despite more private sector job growth in the first two years of the Obama Administration, than in the totality of the Bush years, our economy is still dramatically below capacity. To put that into simple English; inflation isn’t happening anytime soon. There is plenty of time to begin a slow and steady interest rate climb to soak up excess cash that may have accumulated from the various sources of fiscal stimulus. Unemployment will have to fall by another 100 basis points at least before the Fed board would consider such interventions. As such, Alan Greenspan’s assertions of bond crisis would be laughable if they weren’t so insulting.
What crisis that might exist is a purely political one related to the arbitrary debt ceiling. Failing to raise that limit would cause a real crisis in all of the capital markets. There are no good short term reasons to keep the ceiling at its current level, countries like Japan have economies that are stronger than ours while holding much more debt as a percentage of GDP. Not raising the ceiling would be a cynical exercise in political leverage. Strangely, Mr. Greenspan made no mention of this fact in the midst of his Chicken Little impersonation. The issues of taxes and spending, budgets and recessions, are serious issues. These issues do have ramifications for average citizens and the future of our nation. In short, these issues are far too serious to be addressed by a has been banker who has proven, time and again, that he does not represent the issues of average Americans.
The Rational Middle is listening…