Mr. Andrea Mitchell is a Demented Fool

[cthulu2016]

Last edited Sat Jun 2, 2012, 05:18 PM - Edit history (9)

The myth of Alan Greenspan is easily understood. He had just been appointed by Reagan when the stock market crash of 1987 happened. Something bad had happened and he looked around and said, "what can I do about it?" and the only thing he could do about it was to cut interest rates... so he did.

And the stock market recovered from the crash of 1987 quickly and the economy wasn't too hurt by it, and Alan Greenspan was a genius. (The crash of '87 is probably best thought of as an early experience with new-fangled computer trading that made a correction within a bull market happen with blinding speed, and overshooting the mark, not as a real crash like 1929 or 2008, so it makes sense that it recovered ground fast.)

And this genius then did a series of simple-minded things that added to his legend. My personal favorite was cutting rates in 1998 in response the the Asia crisis to "save" a US stock market that was already in a bubble.

Anyway, this "boy genius" who is about 126 years old just will not go away.

Investors could revolt at a moment's notice against high government deficit levels, jeopardizing chances at a recovery and potentially sending interest rates soaring, former Federal Reserve Chairman Alan Greenspan told CNBC.

The former central bank leader — nicknamed "The Maestro" by his supporters — said he worries the current economy could be heading on a path similar to 1979, when the 10-year Treasury note was yielding around 9 percent before surging dramatically, gaining 4 percentage points in just a few months.

"I listen to a lot of what people say that we don't have to worry. We can do it in our own time," Greenspan said in regard to trying to bring down Washington's $1.2 trillion budget gap. "Good luck. The markets have not been told this."
...

But Greenspan said he worries that economists lack a sense of urgency about getting the deficit spiral under control. Without fiscal discipline, the market can push rates higher rapidly if confidence wanes in the government's ability to get a handle on the problem.

...

http://www.cnbc.com/id/47643118

"he worries the current economy could be heading on a path similar to 1979, when the 10-year Treasury note was yielding around 9 percent before surging dramatically, gaining 4 percentage points in just a few months"

How the hell could our economy be heading on a path similar to 1979? We have never seen such different economies! "I fear that interest rates in our lowest inflation economy since the Great Depression will behave exactly like our highest inflation economy since the Great Depression."

Yes, an economic "genius" just said essentially that. (it sounds more like sharing in phobia group therapy than a serious economic prediction.)

The 10-year Treasury is is currently yielding 1.7%, not 9%. The reason it was primed to spike up in 1979 was that inflation was very high so people were worried about inflation, and with good reason.

(Just for devil's advocate laughs, let's say the same thing did happen. In 1979 treasury yields spiked 44%... from 9% to 13%. If that happened today the 10-year would zoom up to a staggering 2.45%. OMG!!)

Was that 44% spike because of our huge deficits scaring investors? No, it was because we got lots of terrifying economic data about inflation going up.

This was 1979. Reagan hadn't taken over yet. We did not have huge deficits yet because Republicans were not in charge.

Here is a FACT, of the factual sort.

The deficit declined during the Carter presidency. (The Vietnam war had ended.) And in 1979 the national debt as % of GDP was 33%, the lowest it had been in years. After twelve years of Reagan/Bush it was exactly doubled, to 66% of GDP. And interest rates were much lower than in 1979.

Why would investors have seen a 33% debt as unsustainable but a 66% debt as no problem?

They didn't. The whole thing is ideological bullshit.

T-bill Interest rates are primarily (not entirely, but primarily) a prediction of future inflation, not a public opinion poll for people to say whether they like Jimmy Carter.

In 1979 inflation was surging and with no obvious end in sight. People had 20% mortgages, You could get 10% on your savings in a money market account. A bond buyer loses enthusiasm for a bond paying 9% when it appears that inflation is likely to be 15%. Duh. Of course the interest rate will spike to follow inflation expectations.

Not everything is a RW psycho-drama or morality play. It was not because investors specifically feared the US deficit was too high. It was because they feared, rationally, that inflation was increasing for whatever reason.

The conservative projects his anxieities onto the investor. Listen to the Republicans today. Businesses are not hiring because they fear Obamacare. WTF? Did we lose Occam's razor? Businesses are not hiring because there is less demand for their products. If there was lots of demand businesses would take some risk (what job creators do, right?) and hire some people to maximize their profits today. Seriously... "I cannot meet the runaway demand for my products but I don't want to sell more products because I am afraid of Obamacare."

Or this, which is even funnier... "I do not want a fixed rate loan today because I fear future inflation." Think it through. It's epic. If we attribute weak home sales and few business start-ups to a lack of confidence in the US's fiscal position we are saying just that!

If people fear future inflation from our runaway debt then why aren't they buying houses and starting businesses today? I can borrow $1 million at 5% interest to expand my business but I am afraid that interest rates will go up because of Obama's reckless borrowing. Um... who cares whether interest rates will go up after they get a fixed rate loan? If you can buy a house with a 4% mortgage and you think there will be a lot of inflation down the road you buy the house. You will get to pay off the house with deflated dollars, and at an annual interest rate below inflation. If businesses and consumers were motivated by fear of the deficit they would lock in all fixed rate debt they could possibly get their hands on. Instead, their current behavior is consistant with expecting further stagnation.

I hope that interest rates do spike soon because if they do it will be only because of expectation of an economic recovery. And conservatives fear that. Given a choice of economic recovery and super-low interest rates they will chose the later. They already have.

And, just to tie this up, was 1970s inflation due to US government deficits? Well, since the deficit doubled under Reagan and inflation was cut more than in half I'm not feeling that argument. (Thought experiment: If Carter signed a balanced budget in 1979 would treasury rates have collapsed 4%?)


Greenspan needs to go back to reminiscing about his time as Ayn Rand's sex toy (true story) and leave policy to the living.

[WCGreen]

1. The republicans have no sense of urgency to fix the economy...

They just want to win to finish off the working people in this country...

[Wounded Bear]

3. Of course not....

It's too valuable a tool for them.

Much like abortion, solving it would take away one of their strongest wedge issues.

Keeping the economy limping along works to their advantage.....so far, anyway.

[patrice]

2. Greenspan, the pusher-man, Wall Street, the addicts. nt

[JohnnyRingo]

4. I recall an interview about a year or so after he resigned.

His timely resignation wasn't coincidental, as he, more than anyone else was able to see the looming Wall Street crash and recession. In the interview he was asked if he made any miscalculations during his term in office.

To paraphrase, he said he didn't expect Wall Street barons to kill the goose that laid their golden eggs. He really thought they would use the honor system of deregulation to keep the money pump going at a healthy rate. Without actually saying so, he completely discounted greed as a factor in his economic plan to minimize government hindrance of private equity.

Not only did they kill the golden egg laying goose, they raped it, plucked it, cut out the best fillets for themselves, and tossed the dying carcass to the side of the road for the taxpayers to resuscitate.

If the United States used Soviet style justice for bureaucratic malfeasance, Alan Greenspan (and his media compliant spouse) would rightfully be committed to a lifetime of hard labor in the frozen lumber mills of the Tongass National Reserve.

[cthulu2016]

6. That's funny. And sad. And scary.

[Jim Lane]

5. K&R for a welcome dispatch from the reality-based community. (n/t)