Federal Reserve Chairman Alan Greenspan testified before the House Financial Services Committee on Wednesday and the Senate Finance Committee on Thursday. As usual, Wall Street and financial journalists were all in a tizzy. The Dow reached highs not seen since 2001, and the S&P 500 reached recovery highs. Bonds and the dollar scurried off in opposite directions.
Greenspan’s semiannual testimony before Congress is much anticipated by market watchers, much discussed in the media, and much dissected by analysts for any nugget of the future that might be discerned. The reality is his testimony is all about deception. Greenspeak, his torturous twisting of words with endless assumptions, conjectures and qualifications, is not meant to inform, but to misinform and to give the impression that all is well, at least at the Fed.
For your own sake, think of his testimony as Greenspam. It’s about our green money, but otherwise it is nothing but a useless distraction and annoyance. Delete it!
I actually have a Greenspam translator device, which eliminates all the extraneous information and provides a short summary of what Greenspan really meant to say. Here are the results from the last two days of testimony:
"We really don’t know what is going on in the economy, but all we really care about is getting George Bush reelected. I screwed his father out of a second term and I’m not going to make that mistake again.
We are not sure what we are going to do after the election, but because interest rates can’t go much lower, they are probably going higher. We do know that we are going to royally screw a lot of Americans in the process, but that can’t be helped. It’s what we do here at the Fed."
When Greenspan testifies, he gives his listeners in Congress and the media the message that all is well with the economy. All of his statistics are used to paint a rosy picture. He now tells us the weak dollar is good for the economy, but a few years ago he told us that the strong dollar was good for the economy. How convenient!
Of course he does mention that there are risks in the economy, but he is always ready to step in, take charge, and make everything better again. For an example of his accuracy, let’s take a look at the opening statement of his Congressional testimony given February 23, 2000, right before the stock market began its crash and the economy sank into recession.
There is little evidence that the American economy, which grew more than 4 percent in 1999 and surged forward at an even faster pace in the second half of the year, is slowing appreciably. At the same time, inflation has remained largely contained. An increase in the overall rate of inflation in 1999 was mainly a result of higher energy prices. Importantly, unit labor costs actually declined in the second half of the year. Indeed, still-preliminary data indicate that total unit cost increases last year remained extraordinarily low, even as the business expansion approached a record nine years. Domestic operating profit margins, after sagging for eighteen months, apparently turned up again in the fourth quarter, and profit expectations for major corporations for the first quarter have been undergoing upward revisions since the beginning of the year — scarcely an indication of imminent economic weakness.
When Greenspan discusses concrete problems in the economy he is always quick to point out that these problems are never the Fed’s problem. He is always willing to help, but it is Congress that needs to get working fast on problems like the abysmal savings rate in America, the budget deficit, and the looming crisis of Social Security. He conveniently fails to mention that it is his low interest rates that discourage savings, that his willingness to "launder" federal debt encourages budget deficits and increased spending, and that he personally blew the opportunity to reform Social Security in the early 1980s.
During his testimony before the House Financial Services Committee, Congressman Ron Paul from Texas turned up the heat on Greenspan. The Congressman thanked him for drawing attention to the budget deficit and was relieved to hear that Greenspan was thinking about turning off the printing press (or at least slowing it down), but criticized him for thinking that he or any central planner had any method of determining the "neutral interest rate."
The feisty Congressman then asked Greenspan if the Federal Reserve and all its enormous power was a threat to freedom and economic prosperity. Greenspan admitted that under a fiat monetary system the Fed does have inordinate power but he added that this power was granted to them by Congress and that Congressional oversight of the Fed will ensure that the Fed will adhere to its duty to be responsive to the concerns of Congress. I am sure that this response was reassuring to Ron Paul’s colleagues, but we should view it as alarming, although certainly not surprising.
The general lesson here is not to listen to Greenspan’s deceptive testimony. Delete it from your mind like Spam e-mail messages. Watch what he has done and what he is doing, in order to protect your wealth and capital. Discount anything you read about his testimony except Congressmen Paul’s questions and commentary. As Gary North warns, when Greenspan is dealing the cards, pay no attention to what he is saying…keep your eyes on his hands.
Mark Thornton [send him mail] is an economist who lives in Auburn, Alabama. He is author of The Economics of Prohibition, is a senior fellow with the Ludwig von Mises Institute, and is the Book Review Editor for the Quarterly Journal of Austrian Economics.