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For a few months now I've been coming to the painful conclusion that Alan
Greenspan isn't a very unintelligent man. He has raised interest rates
three times and has indicated more raises are coming for no justifiable
reason. His first excuse was the spector of price inflation. When evidence
of such never materialized, he started talking about low unemployment rates
and wage inflation. When that didn't stick either, the overvalued stock
market became the bogeyman. Of course, raising margin limits would be a
much better way to attack that (supposed) problem, and yet he chooses to
raise interest rates instead. For years Greenspan hinted to lawmakers that
the reason he couldn't lower rates was because federal deficit spending was
artificially stimulating demand to a dangerously high level. Now that we're
running a surplus, he raises rates anyway.
Despite some occasionally positive words about the "new economy," he's made
it clear he doesn't feel the business cycle is dead. When better and better
productivity numbers kept coming (which shouldn't happen this late in the
so-called business cycle), he actually stated he was concerned about the
improving productivity because it was enticing consumers to spend more!
What this all adds up to is a man totally out of touch with reality. He
claims he wants overvalued high tech stocks to fall, and yet his rate
increases just push more money into them. As Louis Rukeyser recently
stated, "the only justification the Fed has given for continuing with this
misguided policy is that it hasn't been working".
Then it hit me. Greenspan is not only not stupid, but an absolute genius!
Here's my theory:
Greenspan not only accepts the new paradigm and the new economy mantra, he
is a radical supporter of it. To him, the emerging technology companies not
only represent a fundamental change in how business is done, they represent
the key to America's economic prowess and competitive advantage in the
future. To Greenspan, the hyper-growth of these companies is not only good,
but absolutely crucial. Although the business outlook for these companies
is good, he sees a very serious problem on the short-term horizon- a
scarcity of workers.
Greenspan publically claims to be worried about the effect of a labor
shortage on consumer prices, but the truth is he's really worried that the
low unemployment rate will significantly hinder the growth of new economy
companies. He knows the laws of supply and demand will eventually solve the
problem on its own, but he feels America can't afford to lose even a single
minute if it wants to maintain its dominance of the high tech world.
Greenspan wants to speed up the process, so what does he do? He raises
interest rates, while at the same time he increases the money supply.
Greenspan is fully aware that rising rates won't hurt new economy companies.
Almost all of them acquire their capital in the equity markets, and have
very little debt. The old economy companies, however, are a different
story. The combination of higher rates and energy costs has begun to hurt
the profits of these businesses. What will be their response to this
tougher economic environment? Layoffs. Where will these idled workers find
jobs? With new economy companies.
To keep the new economy engine running at full steam during this transition,
Greenspan keeps the money supply high. That money flows right into the
stock market and right into high tech stocks. This keeps them awash in cash
to continue to capture market share. The fears revolving around Y2K issues
(which Greenspan knows is bogus) gives him the perfect excuse to expand the
money supply.
Of course, Greenspan can't just come out and say what he's doing. The world
economy expects the Fed to be a conservative, slow-changing institution.
Such radical talk could seriously rattle markets around the globe, and
jeopardize his job. Rather, he just keeps preaching the "eternal vigilance
against inflation" philosphy to the public and to politicians, who don't
know any better.
Hey, you gotta admit, it's one of the better Greenspan conspiracy stories on
this list...
Bruce
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