The View From 1776

The Greenspan Put Survives

Obama’s nomination of Janet Yellen to succeed Ben Bernanke as chairman of the Federal Reserve was joyously received in Wall Street.  Reassured that the “Greenspan put” (the readiness of the Federal Reserve to pump fiat dollars into the financial system to shore up stock and bond prices) remains in force, stock and bond market speculators turned on a dime and pumped the markets back up after word of Yellen’s nomination.  Financial market speculation will remain a no-risk game as long as the Greenspan put survives; speculators can be confident that they can borrow whatever amounts they need, at far-below-real-market interest rates.

Posted by .(JavaScript must be enabled to view this email address) on 11/07 at 08:39 PM
  1. Thomas,

    It is correct that as long as unemployment remains high, the economy will suffer. This is why the austerity theory is so damaging. The issue of the "deficit" is extremely important, but it is the TRADE DEFICIT rather than the budget deficit that is killing the economy. Goods purchased abroad sends money out of the country. Only expansionist policies can turn this picture around, and the austerity hawks seem not to understand this simple concept, to all of our detriment.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/08  at  10:23 AM
  2. High unemployment is the result of a bad economy, not its cause. Same with consumer spending. Keynesian pump priming, printing money, only attacks the symptoms while exacerbating the causes of recessions.

    The trade deficit has historically been offset by other factors influencing the balance of payments. Sending money out of the country is best illustrated by the foreign aid and military spending overseas that Obama has squandered for seven years and that is a waste. On the trade deficit we at least get goods back for our money. Also our failed tax system keeps trillions of dollars trapped overseas in the accounts of our multi national companies which would be penalized for bringing their profits home!
    Posted by Bill greene  on  11/08  at  12:22 PM
  3. Bill,

    So, what is your recipe for getting the economy moving again? Waiting for the stars to align? Giving tax cuts to the rich? Cutting the food stamp budget?

    Can you explain how the theory works to increase demand for goods and services by doing nothing?
    Posted by .(JavaScript must be enabled to view this email address)  on  11/12  at  04:48 PM
  4. Jay--You are fixated on the need to "increase demand for goods and services." Increased demand is the result of s good economy--not a causative factor that creates a good economy. Besides, Humans are insatiable consumers--there is no need to fuel their appetite. Big corporations and ad agencies do plenty to encourage consumption. There is no role for government there!

    Indeed, we might be better off if people saved and invested more, and consumed less. Much of the consumption you want to stimulate is on imports-- a spending pattern that helps China more than America.

    The economy will flourish if businesses and the public have confidence in the governing establishment. The recent mortgage meltdown was casued by evils in the governing elite--Wall Street and Washington. Much of the public lost money and saw their savings decline as a result--that put the crimp on the economy. If the government stopped foreign aid, brought most of the troops home, and allowed corporations to repatriate their foreign earnings, our finances would be better off. If the waste and fraud in our entitlement programs was reduced we could reduce the deficits and thereby increase confidence in the government. Same end could be met by slashing most government subsidies.

    Ten years of doing the opposite has not worked. It is a form of insanity to continue what doesn't work!
    Posted by bill greene  on  11/12  at  08:26 PM
  5. Hi Bill,
    I heartily agree with you that our overseas military involvements are sapping our economic vitality, and we should get out of Afghanistan as soon as possible. Attacking Iraq and Afghanistan were some of the worst mistakes made by our government in recent history. We have nothing to show for those lost lives and trillions down the toilet.

    And I now get your philosophy of dealing with a national recession or depression. You believe the government should make no effort to spur the economy at all. We should not invest in roads, bridges or any other public works, and we should more or less sit on our hands and hope the "confidence fairy" drop down out of the sky to miraculously get the economy out of the doldrums "naturally."

    It is true that the Republicans have been on an "austerity" ("Cut, cut, cut") binge for the last five years, and I agree with you that it does make sense to realize when a failed policy has not worked. But your vision of recent fiscal history is at variance with mine. In my view, it is the failure to "prime the pump" with federal spending that kept our economy sick.

    This morning I saw a comment by Elizabeth Warren you would appreciate. She said that "failing to invest in the economy is like cutting off your feet to avoid the cost of boots."
    Posted by .(JavaScript must be enabled to view this email address)  on  11/13  at  10:56 AM
  6. Jay--investing in legitimate infrastructure that is interstate or beyond private/State capabilities is a good stimulus to an economy. It is an example of one of the positive actions a government can take. There aren't too many others.

    But there has been little of that of late. The trillions of stimulus spending went primarily to relatively useless investments, subsidies, bailouts, and increased entitlements, none of which add to our infrastructure or savings. The one tenth of 1%ers in the finacial/political sectors reaped the huge reward and the gap between them and us has grown bigger and bigger. Face it- Obama is sleeping with the enemy, feeding the people populist pap, and enriching himself and his cronies.
    Posted by bill greene  on  11/13  at  07:27 PM
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