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Post by xtra on Sept 22, 2007 23:22:22 GMT -6
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Post by judes on Sept 23, 2007 8:41:19 GMT -6
OMG just as I was reading this I flipped the tv to cspan2 and Greenspan is on right now talking about his book. He just said (as word for word as I can recall) Capitalism won't stand if a majority of people feel they are not getting a share of the benefits of capitalism, and that right now all the data suggests there is a disproportionate distribution of wealth or gap in income distribution.
The interviewer asked him what would be his solution to this. He said two things, 1) Better education, blah blah blah the standard talking point bs. And guess what his number 2 solution was?? He said: 2) we need to open up the borders to allow more skilled foreign workers in the country, way beyond what we do today. He said this would suppress the skilled workers wages thus reducing the gap in the levels of income between skilled and unskilled workers. WTF? So I hope his plan for bringing in cheap foreign workers includes CEOs, government officials and FED shills like himself.
Oh and then he said the amount of money a person makes is not what makes him happy, it is where he is relatively in the pecking order that matters. I don't know about you, but if I'm as relatively poor as most of my neighbors, I still will not be happy if I can't afford basic food and shelter!
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Post by blueneck on Sept 23, 2007 8:50:41 GMT -6
So basically his idea for reducing the wage gap is bring the middle and upper middle class down rather than the uber wealthy. Or the morally ethical method of pulling up the lower and middle class.
If his goal is to prevent public revolt this is exactly the opposite of what needs to be done.
Greedspan is a complete shill for global corporatism, and his policies prove it
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Post by judes on Sept 23, 2007 8:52:33 GMT -6
Exactly!
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Post by jeffolie on Sept 23, 2007 12:01:31 GMT -6
Why would anyone pay attention to Greenspan? I do not.
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Post by Ken on Sept 23, 2007 12:11:55 GMT -6
I saw the same interview today. I found that comment interesting to say the least. He is the forst to come out and say that competiton for wages at the top must increase through the importation of labor. Prices wont come down. Recent evidence suggests that they are sticky on the downside and any increase in wages allows wholesale prices to bleed through to CPI.
We are definitely seeing the problems with imports of foreig goods. Safety being the first and there is growing support for enviromental reforms. Those must be imposed globally and US Policy ad the corporate ownership of washington and its message wont allow for penalties for non-compliance. We cant do it with the NAFTA alliance let alone the WTO.
I was surpised to hear his comments on inequality. He also warns on this in his book. Robert Reich does a nice pice on this on the audio portion of his website.
America risks political stability and its position as the global reserve currency is under assault. That unwinding is already underway. I and the senior management where I work are playing considerable attention the the debt markets as they did not react as expected to the .5% rate cut. I have also heard some surprising contradictional comments coming out of the right who now want the ECB to cut rates. It seems strange as they were touting the rise in exports as a point of strength. It seems now they want the dollar rescued through actions by foreign banks to weaken their currency. Of course they frame this position by stating "Europe should take a pro-growth position" Who do they expect to export to ?
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Post by unlawflcombatnt on Sept 23, 2007 17:32:14 GMT -6
I also heard Greenspan's recent commentary. And I heard his wage inequality-education myth. The hypocrisy was astounding. First he blames lack of education for lower wages and wage inequality. Then he touts increased immigration of highly-educated workers to suppress the wages of those that are educated. He said both of these in almost the same sentence.
If education is supposed to increase wages, then importing educated foreign workers would suppress wages. It increases the supply of educated workers, reducing their bargaining power, and reducing their "price" to employers. Why obtain more education, if the rewards will be reduced by competition through importation of educated foreign workers? Why pursue more education if the government is trying to reduce the future income of those pursuing more education? If increasing the number of college-educated workers is the goal, reducing the rewards for that education is completely contradictory.
Greenspan's public disseminations are a mixture of keen insight and self-serving spin, along with some poorly supported, half-baked theory.
Greenspan's reference to his earlier statements reminds me of the story of Hansel & Gretal, where they left bread crumbs to find their way home. In the case of Greenspan, those bread crumbs come from his earlier speeches, when he made vague statements that he can now re-interpret to exonerate himself. For example, Greenspan vehemently denied the existence of a housing bubble when he was chairman. Yet now he conveniently refers back to his statement "there is some froth in the housing market." He now interprets this to mean that he did warn that home price appreciation was excessive. Of course, he had no intention for his statement to be interpreted that way at the time.
Greenspan also describes the effect on the world economy of the fall of the Soviet Union. He describes it as the movement of 1 billion workers out of central planning and into the free market. And he leaves it at that.
What he does not clarify, however, is that the major effect was to put 1 billion more workers into competition with American workers for jobs. It made 1 billion more workers available to American capital. It opened new investment opportunities for American capital in formerly Communist countries, which subtracted from capital investment in the U.S. The availability of an additional 1 billion workers to American investors, resulted in reduction of American employment and wages.
The fall of the Iron Curtain not only expanded the labor market by 1 billion workers-- it added mostly poor, easily exploitable workers. In contrast to the labor market expansion, the addition of 1 billion new "consumers" to the consumer market had much less effect. Low-income workers expand the labor market much more than the consumer market.
The number of workers increases the labor market size. In contrast, the consumer market size is determined by aggregate consumer buying power, not the number of consumers. The consumer market size is determined by the number of dollars available to spend, not the number of consumers spending them.
It takes wealth, income, or borrowing power to become a consumer. It takes neither to become a worker. It takes only 2 hands, along with a desire to survive. The less spending power workers have, and the more dire their survival situation, the more desirable they are to employers. They'll work for less. Destitution drives wages down. Lower labor costs for an equal amount of production increases profits. Everything else being equal, replacing $130/day workers with $5/day workers increases profits by $125/day per worker.
With sufficient training and capital investment, impoverished workers can become equally productive to more expensive workers. Yet they're still less costly. Impoverished workers thus become as productive as American workers, but remain less costly. Capital flows to areas of highest returns. Cheap labor markets bring the higher returns, as long as access to the richest consumer markets is maintained.
Increased labor supply suppress wages, since increased supply of anything reduces price. The addition of 1 billion workers to the labor supply suppresses "price" a lot. Even without an increase in product sales, profits can be increased through labor cost reductions.
Stagnant labor income would normally prevent increases in consumer buying power and production. This, however, has not occurred. Increased borrowing has made up for stagnant wages. Debt-financed spending has provided increases that wages could not provide. If the lost labor income of consumers is replaced by increased borrowing, no decline in consumer spending occurs. As a result, no decline in revenue from product sales occurs. Sales profits continue increasing from debt-financed consumer spending, combined with the decrease in labor costs.
Expenditure of savings and sale of existing assets have also helped fund spending, by both consumers and business. Both sources, however, are limited. Eventually there'll be no more assets to sell, and no more savings to spend.
As a result of the above, recent spending increases are not sustainable. That is, unless, another mechanism for increasing debt-financed spending can be found. That seems unlikely. In fact, the opposite is occurring. Previous sources of debt-financing are drying up. Borrowing ability is declining. The price of the collateralizing assets that fueled the borrowing are declining. The market price of securities backed by these assets is declining. The market price of assets purchased with those assets is declining. The market price of assets purchased through leverage backed by these securities is declining even more. The augmented appreciation through leveraging, will lead to an augmented de-preciation through de-leveraging.
The overpricing from the original mark-to-model valuation is being exposed, resulting in reduced prices. Subtracting still more from the original overvaluation, is the declining value of the collateralizing assets themselves.
Additional devaluation will occur from public perception. The public perceives further devaluation from replacement of higher mark-to-model valuation of ABSs/MBSs, with lower mark-to-market valuations. Still further devaluation is perceived from still further decline in the prices of the assets themselves.
Home prices, the major collateralizing asset, are declining. Many forsee price declines of 50%, and even more in the biggest "bubble" areas. In theory, an asset-backed security has no more value than the market value of the asset that backs it. This will become closer to reality as more ABSs are exposed to market prices, and more of the collateralizing assets are exposed to the market.
And despite the claims of Wall Street and investment bank wizards, the inability to sell at a discounted does not imply an "inability to assess the price." It means the discounted price is still is too high. If no one will buy it for the current offering price, the offering price needs to be reduced further. If no one will buy it at any price, it means it has NO value whatsoever. It means its market price = $0.00. Many ABSs are approaching a "$0.00" market price.
In conclusion, Greenspan has spun the interpretation of previous events, as well as his own words. Though he remains a "maestro", the title now extends to his ability to re-interpret historical events, in addition to his own words.
Greenspan uses his previous words like Hansel and Gretal's breadcrumbs, to "find a way back" to previous vague statements. But unlike Hansel and Gretal, his words were never intended to help "find a way back" to their original meaning. Rather, their vagueness allows him to "find a new way back"-- a way to concoct an alternate meaning for those words-- a meaning that exonerates him, rather than indicting him.
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Post by blueneck on Sept 23, 2007 20:45:57 GMT -6
He even went so far as to suggest and encourage home buyers to go with ARMs and other gimmick and "innovative" financing as a response to at the time warning signs that the housing market was overheating. He admits that sometimes he was deliberately vague and obfusacting with his "fed speak" - good point that it now gives him convenient outs.
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Post by unlawflcombatnt on Sept 24, 2007 4:03:41 GMT -6
Mike Shedlock posted a good commentary on Greenspan at his blog, Global Economic Analysis Blogspot No Greenspan, Conditions are NOT Like 19989/11/07 " Former Federal Reserve Chairman Alan Greenspan said the current market turmoil is in many ways "identical" to that which occurred in 1987 and 1998, when the giant hedge fund Long-Term Capital Management nearly collapsed.
"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly [the bank panic of] 1907," ...
Bubbles can't be defused through incremental adjustments in interest rates, Mr. Greenspan suggested....
"The human race has never found a way to confront bubbles," he said.
The truth of the matter is the Fed (and in particular Greenspan) has embraced every bubble in history, adding fuel to every one of them. Let's consider the last two bubbles....
Acting in misguided fear of a Y2K calamity, the Fed stepped on the gas with unnecessary liquidity, having previously stepped on the gas to bail out Long Term Capital Management in 1998.
And after warning about irrational exuberance in 1996, Greenspan embraced the "productivity miracle" and "dotcom revolution" in 1999. Mid-summer of 2000 Greenspan believed his own nonsense, and right as the dotcom bubble started to burst, he started to worry about inflation risks.
The May 16 2000 FOMC minutes prove this....
'Looking ahead, further rapid growth was expected in spending for business equipment and software. ... Even after today's tightening action the members believed the risks would remain tilted toward rising inflation.'
How could Greenspan have possibly been more wrong? Over the next 18 months CPI dropped from 3.1% to 1.1%, the US went into a recession and capex spending fell off the cliff....
In 2001 Greenspan went overboard the other direction embarking on a campaign that eventually slashed interest rates to 1%, while embracing the miracle of derivatives, and encouraging consumers to get into ARMs along the way.
And right as the bubble was busting Greenspan dismissed the idea of a national housing bubble.
Flashback May 21 2006 Greenspan says "Housing Prices Won't Fall Nationally".
History suggests that betting against Greenspan is the correct thing to do....
Confronting Bubbles
As for "confronting bubbles", the Fed foolishly only watches (takes action on) consumer prices. Thus the Fed ignores expansion of credit when that credit fuels asset bubbles as opposed to prices of consumer goods.
The Fed could easily target credit with higher interest rates if it cared to, but it does not care to. This is not a matter of attempting to identify bubbles in advance, this is a matter of attempting to identify credit conditions that create bubbles. And the fact is, runaway expansion of credit fuels one of two things (or both) in some combination: asset bubbles and/or consumer prices increases....
Is it 1987 or 1998?
In 1987 we had the internet revolution to look forward to. Yes that was a productivity miracle but it also allowed the Greenspan Fed to open the credit spigots wide open because rapidly increasing productivity is highly disinflationary. In 1998 as the internet boom was starting to peak there was still one more bubble up the bubble meister's sleeve: The Housing bubble.
In both years the ability of consumers to take on (and afford) debt was vastly different than it is today. In both years there were numerous new credit products to exploit coming up on the horizon: CDS, CDO, SIV, ABS, LBO, conduits, MBS, "Swaptions", etc.
Massive junk bond financed share buybacks, LBOs, and speculation in mergers, and swaps, etc were on the horizon in 1998. Those are now history.
Credit standards were both poised to fall to insanely low levels but are now swinging back the other direction...
Off balance sheet garbage not marked to market was never as high as it is today.
Various carry trades fueled all sorts of speculative investments. Those carry trades have yet to be unwound, but they will be. And they are orders of magnitude bigger than anything we saw in either 1987 or 1998.
The China factor is vastly different today than it was even as late as 1998. The resultant deflation in wages as a result of outsourcing and manufacturing moving to china and service jobs to India is still being felt.
There is now $300-$500 trillion (yes trillion with a T) in derivatives floating around, depending on who you believe. But even the smaller number is many orders of magnitude greater that either 1987 or 1998.
To suggest that conditions are "identical" to either 1987 or 1998 Greenspan is one or more of the following:
*A misguided fool *Lying *Blinded by his own arrogance *Attempting to rewrite history *Attempting to lay the blame on Bernanke *Some combination of the above
Whatever it is, Greenspan is above all .... wrong. Furthermore, Greenspan has been consistently wrong at every major turn in his entire history as Fed chair...."
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Post by jeffolie on Sept 24, 2007 16:58:21 GMT -6
This is very well written.
I agree:
"To suggest that conditions are "identical" to either 1987 or 1998 Greenspan is one or more of the following:
*A misguided fool *Lying *Blinded by his own arrogance *Attempting to rewrite history *Attempting to lay the blame on Bernanke *Some combination of the above
Whatever it is, Greenspan is [all of the] above .... Furthermore, Greenspan has been consistently wrong at every major turn in his entire history as Fed chair...."
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Post by unlawflcombatnt on Sept 25, 2007 5:41:09 GMT -6
There are other differences that Greenspan ignores. It is the total debt. Closely connected to this debt, is the relationship of total housing value vs. GDP. Until 1983, the total value of homes was about the same as the annual GDP. Total home value began increasing slightly faster than GDP after 1983. However, by 1997, it was still only a several percentage points greater than GDP. Then it began to take off. This can be seen in the graph below. (The complete version of this graph can be found at: www.housingbubblebust.com/Fed/GDPvsHSG2005.PNG)By 2007, total housing value was 50% more than annual GDP. It is nearly $21 trillion at present, compared to a GDP of only $13.1 trillion. There's been an alleged increase in Household wealth that has greatly exceeded the production of wealth. This is a trend that exploded under Greenspan. How did home values suddenly become disproportionately large compared to GDP? It occurred from increased debt-financing of homes -- increasing consumer buying power more than incomes increased. The increased buying power increased the market price of homes. Home appreciation exceeded buyers' income increases. The alleged increase in household wealth came from asset value inflation, not from any real value increase. It also worsened the balance sheets of consumers, while those of the government were also worsening. The huge current debt level makes it very hard to borrow our way out. Overall debt makes this much, much different than 1987 or 1998. And, more than anyone else, Greenspan was responsible for this situation. Greenspan's Fed was the lender of last resort-- insuring that credit remained easy, regardless of longer-term consequences.
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