Greenspan: Bubbles Are Function of Human Nature. So the Fed Is Off the Hook?
by Michael Clark, Seeking Alpha
Acting as if he had made a profound spiritual discovery, while sounding and looking more and more like Mister Magoo, who we will remember was as blind as a bat, Alan Greenspan uttered this earth-shaking observation recently:
"I have come to the conclusion that (asset) bubbles, as I noted (earlier), are a function of human nature...."
My first impulse was to check and see if this was a Saturday Night Live spoof. Sadly, it was not.
Of course humans have as part of their composite nature fear and greed, the two principles that supposed generate asset bubble appreciation and implosion. Of course this is true.
What it misses, of course, is that the Fed is conceived as the governmental (or nongovernmental) institution that should balance these extreme emotions with rational policy. What it also misses, is that human beings cannot create asset bubbles without complicity from (a perverse form of leadership) interest rate policy makers.
Human nature is also violent. Should the Fed encourage humans to murder their neighbors because it is human nature to kill? True, the Fed has less ability to create or deter was than it does asset bubbles. But the Fed, by its very charter, is the engine designed to balance human nature and avoid extremes of human herd instinct.
Or is that true? I'm not sure the Fed understands that it is not supposed to be the head cheerleader of the Wealth Effect superstructure. I'm not sure the Fed understands that its mandate is to balance extremes through leadership - I think the Fed likes being the manager of the Punchbowl and likes helping to generate the illusion (I believe it is an illusion) that economic growth can and perhaps MUST be perpetual and infinite.
I think the Fed believes its job is to help make humans perpetually and infinitely richer, minute by minute, day by day. This is a problem if the world does not work this way, does not work in perpetuas, in infinities.
Is it the Fed's job to make the economic tree growth ALL THE TIME? The much-used indicator of economic health, GDP, is a measure of spending, growth, expansion. If GDP indicates a loss of momentum, a loss of growth, then the knee-jerk reaction (in a polarized dualistic world where growth is good and non-growth is bad, even evil) is to increase spending. How does one do this? Of course, a policy needs to be pursued in which spending continues to grow. Lower interest rates, encourage debt-spending. Debt-spending is better than non-growth. That is the assumption. But is it?
What if the world does not work this way? What if Spending, Growth, Expansion is periodical only? What if Spending is the engine of the Growth Cycle, but Saving is the engine of the Non-Growth Cycle leading to regeneration and rebirth of the Growth Cycle? What is Spending (Energy-Expenditure) is the mechanism of the Day, and Saving (Energy-Conservation) is the mechanism of the Night?
If the world works differently than the paradigm the Fed is assuming is true, then this is a major problem. When we look at Nature we see nothing that follows the perennial expansion model. Man does not expand for ever. He expands and grows and reaches an apex of growth (metaphorically harvesting his talents and energies), and then he declines with age. Civilizations are not perpetual; they rise and fall; they grow and then rest.
The Fed is working with an illusive paradigm, a mental paradigm that does not exist in the material world. Growth is driven by extroverted energy, which is a sign of youth; then entropy sets in, leading to more and more disorganization of matter, chaos, as energy becomes more and more introverted.
Empires are about increasingly cohesive energy creating increasingly complex structures. But then entropy sets in. The Growth Season ends; and the Rest Season begins.
The Fed is trying to force Growth on a system in the wrong season. The Fed believes that it must keep the GDP-odometer in the red, even if it does so through massively increased debt spending, and this will be victory for growth, success for Wealth Accumulation. They refuse to look at the huge negative effect that the debt itself is having on the organism. Debt is future entropy. Debt is guaranteed entropy. Debt is entropy.
Greenspan wants to intellectually justify his role as Fed Chair and to transfer blame for the destruction of the Global Economy, the American Economy, to the pubic, to human nature. He is saying that
"It wasn't my fault! The public is greedy. There is nothing we can do about it!"
The first part is true. All humans are subject to the waves of greed that push humans too far, to commit crimes, to take on too much debt, to lose track of reality because of fantasies of extreme personal wealth. But the Fed can do something about it. The Fed SHOULD have done something about it. But the Fed is in a moral bind. The Fed knows that bubbles, the surging of Human Greed, is dangerous, if not immoral. But it also believes that its opposite is also immoral: deflation. Why is deflation immoral? Well, we all remember the images of the 1930's Great Depression. Mass unemployment, poverty, despair, followed by World War is how the generations that have lived in the Twentieth Century views deflation.
Pain. Dislocation. Broken dreams.
Is it immortal NOT to resist pain, dislocation and broken dreams with all your might?
Well, the moral view is simplistic. Of course, we all want to do what is moral, we all want to be on the right side. We all want to support growth, human dreams and aspirations. That is a very human desire. To be politically correct, as the mind instructs us: to do no harm.
But Nature has laws, inviolate laws. Ask any physicist. Nature is not moralistic. Nature's laws do not always provide for the glorification of personal dreams. Nature has cycles. Nature gives Life, but it also takes away Life, also gives Death. Nature gives abundance at times; it also takes away that abundance.
Cycles (and we remember that the sickle that Saturn, the Grim Reaper, is often shown carrying in mythology, is a glyph for such cycles) represent perennial change. The world never stands still. And so, if your world view is based on a politically correct notion of a gentle, kind world that stands still - and we are being led by people with this world view - these two views are in significant contradiction.
We are being led by a government and a federal bank system that has come to believe that it is its duty to keep the American, perhaps even the world, citizenry from being hurt, from feeling pain, from every again having to experience the horrors of deflation. But this may be an ambition that is impossible to achieve.
The implicit belief of these leaders with this God-infused world-view is that the world can avoid the pains of deflation by simply increasing the debt level when a breaking point is approached. Spending saves the world. Spending makes everything right. Spend the money that you have in your treasury; and when that runs out spend the money that you don't have, spend money you will have in the future. Of course, the banks love this; this gives them unimagined political leverage, because they banks loan them money on future profits with strings attached. They will loan these governments money IF these governments make them the kings of the world, if the governments do what the bankers say. Instead of the governments telling the bankers what to do, the bankers turn the tables and tell the governments what to do - and the bankers hold the trump card, because they can always cut the governments off from their addiction to credit.
Ok. So that is where we are now. In America, the bankers own both parties, the Republicans by affinity - the Republicans all think like bankers anyway - and the Democrats through seduction - they have seduced the Democrats through promises of wealth and social equality to sell their Soul to the bankers.
I'm getting a bit away from my point, I understand. Spending is good; savings is bad. This has become a new perspective of the Fed and the Perpetual Growth Machine view; if growth is good and deflation is bad, and if growth equals spending, then saving money must also be evil.
That is what I mean by simplistic. My parents' generation, who survived the Great Depression - and that is a key notion: there is pain and dislocation and suffering in the Great Deflation; but there is also survival - were very much believers in saving. They would not spend money they did not have (my parents at least). They had a strong belief in saving money to buy something they wanted - they did not trust instant gratification by spending money they did not have. And they oversaw a very strong economic expansion from 1947-1965.
We have to change the way we see the world. The view that only Growth is good is illegitimate and foolish, childish even, when seen through the lens of Nature. The view that only Growth is good is fantasy. Growth happens, bringing with it bounty and expansion of consciousness. But then Growth ends; entropy sets in; energy turns inside out and upside down. Growth engenders engineers, emperors, titans of wealth; science, problem solvers, military leaders; then entropy sets in, and this entropy, the turning inside out and upside down of energy, engenders poets, and philosophers, and musicians, and artists. We need both sides of this spectrum to be a real and a great culture.
We cling to the life and light and matter side of the equation, because we are afraid of the other side. Darkness, death, anti-matter. But, in truth, both sides of the spectrum are necessary and rewarding.
We need to honor the saving side of the spectrum; we do this through raising interest rates, and making saving a successful investment decision. We do several things by raising interest rates: we make our banks healthier; we made our society as a whole (and not just the speculators) more secure financially; we destroy the bad debt we have taken on during periods of too much speculation, bubble-creation; and we also strength the native currency.
There is a moral issue here also. Alan Greenspan says that there is nothing the Fed can do about over-speculation, bubble-creation mania, which is a euphemism for Greed, Covetousness, Finance-Base Criminality, because it is in human nature. But if we continue to stimulate this Greed, this Selfishness, this Covetousness and Hoarding-Desire, then we are encouraging this immorality. Had Alan Greenspan begun to raise interest rates in 2001, instead of knocking rates down, then he would have begun the regulation of greed, speculative-mania, hoarding, which through the entire global economy off-kilter. Higher interest rates will, in fact, kill out greed, kill out speculation, kill out financial crimes in large part, because it will begin to dry out the Great Flood that has engulfed us since 2001.
Greenspan, and then Bernanke after him, and now Yellen refused to balance the bubble-mania by raising interest rates - they preferred the (trial) balloon they were flying and even loaded the balloon with more and more debt thinking the balloon would fly for ever, not for a moment understanding that they were creating a lead balloon.
I remember Bernanke crying out giddily that he and Hank Paulson were 'flying by the seat of the pants, making things up as they went along'... And we were supposed to think that was a good thing?
So, we should have started to raise interest rates in 2001, and we did not, so the problems we face are, indeed, much graver now than they were in 2001, graver even that in 2008. We need to court deflation instead of run from it, resist it, attempt to emasculate it entirely by....destroying the world through a never-ending flood of cheap watered-down money and hopes that the economy will finally start to grow again. Isn't that what our thinking has become?
The fear, of course, is that once deflation begins it will never stop. This, of course, is NOT how nature works. Nature is a great balancing machine.
If deflation takes hold, how do we eventually get out of deflation? We get out of deflation through the natural mechanism of a legitimate Business Cycle Growth Season. The thing is, you don't get a legitimate Business Cycle Growth Season until you go through deflation. It is somewhat like wanting a Perpetual Summer on Earth. You don't get the next Summer until you go through Winter. The process actually works in a very logical manner.
Linear thinking is the enemy here. Growth is good; non-growth is bad. Inflation is good; deflation is bad. In truth, Inflation needs deflation to curb its excesses; and deflation needs inflation to curb its excesses.
Deflation will cure us of too much spending, and it will eliminate our BAD debts, our unserviceable debts. Inflation will cure us of too much saving; and it will cure us of our sluggish growth.
We talk of these two forces as if they were poles that never approach one another. But this is a false picture. These 'adversaries' working together flow into one another, as the famous Eastern religious symbol suggests.
Night flows into Day; Day flows into Night.
Deflation is the night; inflation is the day. The two go together. You can't have one without the other, as the song says.
Now, today, we should welcome deflation and FEAR inflation. In 2019, at Midnight, if we get our deflation, and much higher interest rates, then we should begin to limp into another business cycle growth phase, which is scheduled to end in 2037, at High Noon.
If we resist our deflation, and insist of protecting debt in order to protect the status quo, we will likely get an extended wreck of an economy, an over-watered Tree of Life drowning in a swamp of worthless liquidity - and we will also likely lose our US Dollar - and we may gain a civil war.
We need to be willing to learn about how Nature works. We gain more information about how Nature, the Machine works during each Day-Cycle expansion; and we gain more information about how Nature, the Living Organism, works during each Night-Cycle Period of Rest.
Best to all.