Friday, June 7, 2013

Greenspan Calls for Depression

Well, not in so many words….

Former Federal Reserve Chairman Alan Greenspan told CNBC on Friday that the central bank should taper its $85 billion a month bond buying even if the U.S. economy is not ready for it.

I am not an expert on the details of the Austrian Business Cycle Fact, however I believe Greenspan is recommending a depression.

"The sooner we come to grips with this excessive level of assets on the balance sheet of the Federal Reserve—that everybody agrees is excessive—the better," he said in a "Squawk Box" interview.

It sounds like he is suggesting the Fed begins to move.

But if the Fed moves too quickly in reining in its accommodative policies, he added, it could shock the market, which is already dealing with a very large element of uncertainty.

It sounds like he is suggesting the Fed begins to wait.

Greenspan said he's not sure the markets will allow an easy exit. "Gradual is adequate, but we've got to get moving."

The markets will not allow an easy exit.  For all of his equivocation, this is one comment that he should have been able to make without hesitation.

To the level of my understanding: once monetary inflation has begun, it must continue at an increasing rate in order to delay the bursting of the bubble.  History has demonstrated this to be true, as monetary inflation has grown at unprecedented rates over the last several years – all solely to delay the big burst. 

Tapering will burst the bubble.  Holding the base stable will burst the bubble.  Continuing to inflate at an increasing rate will, at best, delay the bursting of an even bigger bubble.

There will be no exit.  There will be no tapering – at least not of any consequence.  The Fed may try from time to time (as it has in the past during this episode), but when markets revolt the pumping will begin anew.  This will continue as long as price inflation can be publicly tolerated (this is why I do not believe there will be price deflation in any of the CPI type measurements).  And then the bust.

Greenspan is calling for a depression.  He will most likely get it sooner or later – whatever course the Fed takes.

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