Ah, let’s have a little fun today. I’m going to float a conspiracy theory that I just developed this morning. A few dots connected in my mind, and the dots made me pause.
Now, keep in mind, this is only a theory. I’m toying around with ideas, and I don’t believe them. But the fun part with weaving a story together is knowing that it could be possible given the information you have at hand.
After reading an article on Time’s website regarding Ben Bernake’s recent moves to salvage Bear Stearns I re-thought about my personal view of Alan Greenspan. A few key statements in the Time article made me start thinking harder about Mr. Bernake as well (I’ve never given the guy much thought, as I thought he was nothing more than Greenspan’s flunky). What were the dots? Why is it worth your time to read further? Here, I’ll give you the dots first….. one sentence set me off…..
What caught my attention, and has been over the past week, is that Bernake is an authority on the Great Depression. At this current moment in time the Fed has been examining the Great Depression at length. We’re apparently right on the edge if folks know that those running our banking system are examining that period of time closely.
So, how does all this work up to a fun theory that I’m toying with? Well, let’s talk about my personal thoughts on Greenspan for a moment.
During the 90’s I read a great deal about Alan Greenspan. Being a “gold bug” I learned that Greenspan was extremely vocal about NOT going off the gold standard in 71. He actually wrote a paper on the subject. Beyond the paper, Greenspan had deep concerns regarding leaving the standard, and the power of a central bank without a peg for a currency.
During the 90’s Greenspan went on to manipulate the money supply almost at will. Without the check of a peg for currency Greenspan helped to create and exacerbate the Dot Com bubble (sock puppets anyone), and from the tech bubble we moved immediately into the real estate bubble. Any person without rose colored glasses could see both bubbles forming, and more importantly, could trace the bubbles back to the easy money policies instituted by Greenspan.
I’ve always wondered, “Did Greenspan change his mind between the 60’s and the 90’s?” Sure, it’s possible. Actually, I’ve always thought about 3 options regarding Greenspan embracing the easy manipulation of an economy after strongly opposing such manipulations a few decades earlier. The options are:
- Greenspan completely changed his mind, and now believes that the “right” person could guide an economy without a pegged currency, and that manipulation is not dangerous.
- Greenspan forgot everything he believed back then.
- Greenspan decided to manipulate the economy in such a way as to prove his thesis from the 60’s correct. Economists often show up as petty dictators in 3rd world nations, and that’s a fact. They’ve got an inherent belief that they can move an economy with the right models, etc. And from my personal perspective, given the opportunity, I too would attempt to prove my thesis correct even at the expense of the global economy. Ah, ego is fun.
I’ve always toyed around with option 3. Could the former chairman be so devious as to set out to create bubbles and bring our economy to the brink? Anything is possible. And I know I would have a hard time not doing it if I were in that role (yes, I’m grinning and doing a tongue & cheek thing here).
I haven’t run through my 3 options as to why Greenspan did what he did in a while. But reading this morning’s article regarding Bernake and Bear Stearns something struck me.
Bernake is an authority on the Great Depression.
Both Greenspan and Bernake were well aware of the causes of the Depression. One cause was massive mal investment and over investment in companies that would not fly long. Bubbles formed, just like the bubbles of the past decade.
It struck me. One man who warned of using a fiat currency (Greenspan) and one man who has studied the Depression and it’s causes (Bernake) spent a lot of time together at the Fed. Could they have chatted together, shared the experiments they’d like to conduct, and reached the conclusion they could help each other out?
Hey, if you create huge destructive bubbles I bet I could navigate us through them….. What do you say?
Well, you really think you could avert a Depression if we lowered real interest rates to nearly nil, over leveraged an entire country, and obliterated the value of the currency?
Not sure really, but I sure wouldn’t mind trying just to see what happens…..Want another beer?
It’s only a theory, and not one I believe, but you have to admit, it’s plausible. Take one guy who warned of leaving a pegged currency, and then demonstrates over a decade and a half that he was right, and take another guy with an interest in the Depression and how it could have been averted. Put them together with a few cocktails and you never know what could happen.
Ah, the fun things that bounce through my mind! 
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And yet another reason why drinking is dangerous…
Actually, I think those are all plausible theories…I think that it would be devious indeed, but ego is a huge thing, and power makes people quite heady. I would hate to think that anyone would put so many people at risks just to prove some grand experiment, but it has been done before. I would like to say wholeheartedly that I am excited to see the outcome of what we’re now up against, but I’m not sure excitement is quite the right word for what I feel when I look at the direction our economy is taking…
Greenspan addresses the gold standard in his book. He says that the reinstitution of the gold standard became impossible when Congress decided to create programs, like Medicare, without being willing to tax people to pay for them. You can add to that our fighting two wars that we are not willing to pay for. Thus a nine trillion dollar national debt. I am afraid that there are 534 conspirators (I am subtracting Ron Paul) and they can be found in the U.S. Capitol.
interesting theory. the question is, do either of them have a freaking clue how to halt the train before it leaves the trestle?
here is a link to a points of a discussion which is taking place on boingboing about the state of the economy. i think you will thoroughly enjoy reading through it and the myriad of informational links to even more articles.
http://www.boingboing.net/2008/03/21/good-comment-thread.html
reading your posts, and then those at boingboing continue to open my eyes to even more of what is coming.
thank you for the near daily “economics at a glance” posts. i know i appreciate them greatly!
Herb,
Good points. Bringing back a pegged currency would make unfunded programs impossible. We’ve created so many programs, and honestly people really don’t want to do away with them. Well, at least the programs that benefit them. Personally I love the fact that we subsidize tobacco farmers and cancer research. Two completely opposite things. We do tons of that. If we stopped funding polar opposites we’d save a few bucks. And yes, Congress has done nothing but increase spending every year.
In the end, the printing of money and growth of the money supply erodes real value every day. It’s a shame. The biggest shame is that most of us know a lot more about the latest sports scores than we do about our country’s financial health. Most people I’ve spoken with this week knew nothing of the Bear Stearns debacle. Go figure.
Oh, and the national debt is much larger than 9 trillion. Our country keeps 3 sets of books you know, and the war is only a fraction of the stuff on the balance sheets. This has been coming for quite some time (over a decade). Don’t forget, we’ve got a new prescription program too. Look up stuff from the former head of the GAO….he’s made some pretty interesting statements as of late. And pay attention to all the new benefits Presidential candidates are offering…..more borrowed funds I suppose…..
Oh, and don’t forget all…..just thinking out loud. I know there’s more going on, but I was having fun with a thought.
I think its a case of lots of greed and stupidity,of why we are in this present day situation.