Who's to Blame for the Current Economic Situation?

by: John Mason July 11, 2008 | about stocks: FXE / UDN / UUP    

John M. Mason

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There has been a lot of discussion recently about who is to blame for the current economic and financial situation. I firmly believe that Alan Greenspan cannot be excluded from those that deserve such blame. There is only one question that needs to be asked: Who was the Chairman of the Board of Governors of the Federal Reserve System in the period from 2001 until January 31, 2006? Now look at the chart of the exchange rate between the U. S. Dollar and the Euro during this time.

Need I say more?

By the end of 2006, things were beginning to unravel in the rest of the economy. The rest is history.

Greenspan was an expert on the minutiae pertaining to business cycles. He cut his teeth during the time when understanding short term movements in the economy, independent of what was going on in the rest of the world, was the fashion in economic forecasting. Times changed, but Greenspan did not.

The result:

  • There was a substantial dislocation in world and domestic economic and financial markets.
  • There was substantial commodity price inflation.
  • There was the largest sell-off of American assets in the history of the United States.

See “Foreign Investors Pile Up More Pieces of Americana."

Certainly monetary policy is not the sole cause of the present unpleasantness. The irresponsible fiscal policy of the period cannot be passed over and the failure of the United States government to develop a sound energy policy needs to be included in the picture. However, Greenspan cannot be excused from events because of what was happening in the housing market or some other market. This just diverts attention.

The most important price in an economy is the price of its currency in foreign exchange markets. In watching over this price…Greenspan failed miserably.

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This article has 13 comments:

  •  
    Jul 11 09:00 AM
    Now it seems everybody is starting to wake up and smell the coffee. Too bad it won't change the "solutions" politicians will be proposing.
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  •  
    Jul 11 09:42 AM
    Right on!!!! I always thought Greenspan was messing up badly during the early 2000's when he took interest rates to historical lows and held them there for much too long. Yes, the economy needed a boost after 9/11, but he way over reacted - had he gone down about 1.5% in rates and held for maybe 12 months, everything would have worked itself out - instead he went down about 3% and held those levels for over two years - during which time too many people made too many bad decisions based on abnormally low interest rates.
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  •  
    Jul 11 10:41 AM
    monday quarterbacks-fools. when the rising tide lifts all boats anybody that is critical will be called a fool,unpatriotic,socia... etc.this country,unfortunately,... fools for leadership in politics & finances. can anyone expect a mortgage(no down payment,1% arm,125% of appraised value & no proof of a job, & then after closing on this joke,a heloc) to work out? between the iraqi warWMD??? & wothless paper i fear these fools have killed this once great country or are well on the way to it.how sad.oh yea-i will be called unpatriotic by the very idiots who caused this mess.
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  •  
    Jul 11 11:34 AM
    I agree with the above comments that Greenspan and others who believed the US economy would right itself by lowering interest rates and reducing income taxes when the evidence was out there that there was no will to deal with energy costs are mainly responsible for the current deplorable situation.
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  •  
    Jul 11 11:40 AM
    All booms and busts are caused by the continued and overblown expansion of credit. There is no way that the stock market, housing, commodities and other historical bubbles can sustain themselves by just the honest cash purchases of humanity. No, it has to be credit, and once credit is provided in excess of that needed for normal business activity and consumption, the additional credit at the margin will be used to purchase assets (stocks and bonds on margin, houses on massive margin, commodities on margin as credit is expanded to those who normally lived on a cash basis). When the musical chairs game stops and the realization hits home that the credit bubble was built on absurd asset valuations rather than the ability to service the debt, the chickens come home to roost.

    The coming move is extreme asset deflation, bank failures and governmental intervention in ways never before seen. As usual it will be done by cranking up the printing presses and firing up the helicopter.
    Reply | Link to Comment
  •  
    Jul 11 02:16 PM
    conservative socialism(for wall st. only).
    Reply | Link to Comment
  •  
    Jul 11 02:46 PM
    Agreed. So why don't be just get rid of the Fed entirely?
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  •  
    Jul 11 03:49 PM
    I agree that Greenspan took interest rates too low, and held them there too long. He definitely shares in the blame of our current economic woes, notably the housing market bubble and its subsequent burst.

    What about the lack of an energy policy in the US? Who has been preventing new nuclear power plants and refineries from being built? Who has prevented drilling in the wastelands of Alaska? Who has prevented offshore drilling? Maybe your one of your next installments in the blame series could address who is responsible for the lack of an energy policy in the US.
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  •  
    Jul 11 04:37 PM
    Yes, Buckeye you are correct. The writer assigns the time period of excess liquidity to 2001-2006, showing he is a Democrat. In reality, Greenspan started this crap in the early 1990's because bubble of real-estate in a controlled experiment temporarily helped the housing market in 1978. That was his idea then and his idea during the Clinton generation when there was absolutely NO NEED of inflating a bubble, that was greed and irrational excuberance. But Clinton and Greenspan got to be hero's while Bush inherited the goat. Common political practice.

    Clinton ignored terrorism but I respect some of his cabinet that went public to state we weren't doing enough. Instead of hiring minorities because it 'felt good' in our intelligence agencies, we got penetrated instead. Competing agencies wanted pettings on the head and more budget when they should have have paid attention but when your CIC doesn't why should you? How many blowjobs did Bush get in the Oval Office instead of focusing on the job? Chinese contributions in exchange for missle and nuclear secrets from Los Alamos? How bad would our economy been if we prevented 911? Gutting our military? How about Enron loophole? What legislation was repealed to create this housing situation? Last few days of office closing off a sixty (or was it 80) million acres of drillable land for 'conservation'? The Janet Reno Justice department and activist judges, lawyers flooding the White House? Meanwhile, anybody really wonder how he went from $2 M net worth to $100 M?!? I can lay 75% of the blame on Democrat party as a whole who loves socialism, see them hang out with Hugo Chavez and Fidel Castro, and 90% on Bill Clinton (which includes Greenspan).

    Bush was dumb in his cabinet selection, you NEVER pick a mixed cabinet. Bush was not great but he certainly was not the lametard the MSM promoted him to be so they could win the House in 2006. Nice approval ratings for the do nothing Congress at 9% now. Great party John and wonderful socialism at work there. So John, include 15 years of shitty governance, Dem and Republicans and include 1993-2008 in your charts and include public debts as well while your at it.

    I always loved your big picture articles about human nature as they were neutral but I am not dumb and this is partisan publishing at it's worst, although you do include rightful blame to Greenspan.
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  •  
    Jul 11 04:49 PM
    Here we go, again. A year, or more, ago, I said on this site that Alan Greenspan was largely to blame. Almost everybody said, "Yeah, uh-huh, right. (Wink-wink)" Now, here is a writer getting paid to say the same thing. What are you guys doing, saving my posts, to get paid for, later? Finance is not brain surgery, and a non-"expert" who is paying attention to what the greedy bastards in the halls of government and in the back rooms of business CAN see what is going on, and can also see WHO is causing it. How?, you ask. By getting the names of those who sponsor the actions. Read. Ask questions. And most of all, pay attention to what your eyes and ears tell YOU is going on, with YOUR money. Brain surgery it is not, despite the deliberately misdirecting and misleading charts, graphs, and sqiggly arrows of the "experts." If it looks like a duck...
    Reply | Link to Comment
  •  
    Jul 11 08:06 PM
    It's not too long before there will be a major scare about sub-$1 valuations for money funds.

    Reply | Link to Comment
  •  
    Jul 12 04:12 PM
    The funny part about all of your comments is that nobody has figured out the fact that all of this was predicted in advance. The inflation deflation game is a tried and true method for killing off the smart and capable (aka the savers) and pushing everyone down to the level of the lower class hand to mouth existence crowd (AKA wage slaves). Just like nobody thought to blame greeny for causing it, nobody is looking for the silent influence of those that are doing all this to move toward one world gov't. Give it a couple years and nobody will be laughing at people who suggest this is a planned economic crash. Conspiracy will be revealed along with all the elitist corruption which underpins it.

    Wake up America. Wake up before they impoverish you to the degree that you are no longer capable of fighting the north american union, the next step towards the new world order and one world gov't. Stop laughing at Ron Paul and start helping him. A grass roots effort to retake control of our once proud nation is the only thing that stands between our children and a new, modernized form of slavery.

    Focus on the enemy, not on each other.
    Reply | Link to Comment
  •  
    Aug 02 12:52 PM
    The focus of who's to blame cannot be based on 1 person or even a small group of people for that matter.This fiscal mess involves many throughout the US Government as well as banking system.
    Opportunity,greed,and selfishness were the catalists that helped to create this monster. The forefathers of America knew the need for sacredness regarding a well guarded financial foundation-namely the gold standard. Since the 70's the US Government has clearly sold out that standard followed by pumping more and more paper dollars into it's citizens and the worlds hands. This has steadily devalued the dollars worth to where it's worth 2 cents for 1 paper dollar today. And the irony is that it continues even now...politics as usual...only the economy is going down. The USofA must clean house in and throughout Washington DC AND regarding all of its government offices-State-County-T... etc. to see any real and WORTHWHILE change. Any person who holds,represents,and is working with "We the Peoples" tax money of any kind-should be held accountable with what they are doing or have done with it. Reasons as to why there is a tax for this or that should also be highly scrutinized. "Truth is like oil-it eventually rises tothe surface."TS.
    Reply | Link to Comment
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