'..Mr. Greenspan fails to grasp the essence of this historic Credit Bubble.''..Not surprisingly, recent incredible fiscal and monetary stimulus has demonstrated minimal support for our country’s much needed industrial renaissance. Worse yet, the massive expansion of government debt is backed by little in the way of added wealth-producing capacity. This is a dangerous (“Bubble”) dynamic both from an economic and financial stability perspective.
Sentiment is shifting. Optimism in the sustainability of the recovery is dimming, as analysts come to better appreciate that key sectors remain unhealthy and immune to government stimulus. While the export sector remains robust, its relatively diminished stature limits the overall economic impact. During the past decade, much of our atrophied productive capacity was directed to supplying the housing and related consumption boom. It is now becoming clear that the (post-mortgage finance Bubble and housing mania) recovery will be a protracted and arduous process. Boom-time malinvestment ensures that the value of too much of our productive capacity is impaired in the current economic landscape..
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Alan Greenspan had another hour on CNBC this morning. As an antagonist of historical revisionism, I take special interest in comments from our former Fed chairman. I find it ironic that he assails “a whole structure of [government] activism that has occurred in the aftermath of the crisis.” After all, the so-called “free market economist,” Mr. Greenspan, is the father of “activist” central bank planning. And the current predicament is a direct consequence of more than 20 years of misguided Federal Reserve market intervention.
Not surprisingly, Mr. Greenspan presses ahead with his focus on post-Bubble policy mistakes – regulatory and fiscal, in particular. I’ll not back away from placing primary responsibility on the errors and misconceptions from the Bubble years. The history of booms and busts is rather clear: major Credit booms are precarious in large part because they will eventually lead to strident political responses in financial regulation, spending profligacy and excessive government control over the real economy. The flaws in the Greenspan/Bernanke notion of ignoring asset Bubbles – while being ready to implement aggressive “mopping up” strategies when they burst - should now be readily apparent.
..Mr. Greenspan fails to grasp the essence of this historic Credit Bubble.
The fiscal situation worries Mr. Greenspan, although his analysis never links previous Credit excesses to today’s fiscal “activism” and runaway deficits. The so-called “fiat money system” failed spectacularly in the private-sector Credit boom, yet the role this dysfunctional system is now having in perpetuating a government finance Bubble remains unaddressed. '
- Doug Noland,
Dismal Payroll Data, June 03, 2011