By Michael McCune
Ex-Federal Reserve Chair Alan Greenspan opined about the impending financial collapse of the American government “on the record” Jan. 5. While he scored some point with statements like “Arithmetic demands it (change in the economy)” and “The U.S. welfare state has run up against a brick wall of economic reality…” he missed the crux of the problem in his written tirade; the U.S. economy is in the dumpster with no pertinent way out unless the Federal Reserve and it’s worthless, inflationary policies are eliminated from the landscape so Congress can be held directly responsible for its irresponsible actions.
It is worth noting the author of “Atlas Shrugged”, Ayn Rand, accompanied Greenspan when he was appointed to Gerald Ford’s Council of Economic Advisors back in the mid-1970s. Rand, and her select circle of friends, bickered continually about how to build a better world. Their preferred method was to cut government down to a manageable size and replace the fiat with gold. Both of those aims I applaud.
Greenspan came to Washington just after Nixon took us off the gold standard permanently, a rather odd twist of fate. So unable to realize the second of his two objectives, Greenspan has ever since been trying to collapse the government by wrecking the monetary system so government has to fall back. He didn’t succeed because he had a coalition of presidents during his tenure that refused to go overboard on the spending but he still managed to push the national debt from below $2T to more than $8T by the time he was replaced by Ben Bernanke. Bernanke has almost doubled it and has just started his second term as Fed Chairman.
But it was under Greenspan’s authority that the Fed reversed policies and began making credit available for almost anything proposed by the Democratic controlled Congresses. Each time the economy tried a correction, Greenspan inflated the amount of credit available and floated us farther into debt. This might seem at odds with his core beliefs but he had abandoned his friends during his climb in Washington along with his integrity. He didn’t completely give up Rand’s ideology.
It was Greenspan who brought in ultra-low interest rates during the recession of 2001. Those rates lasted much longer than the emergency and helped lead to the housing and financial meltdown in 2007. He dodged the fallout simply because he had retired before the crisis point hit.
With this in mind, Greenspan’s statements take on a more sinister aspect than first reading would give them. He directly wrote, “only a true revolution” involving major entitlement overhaul will improve the economy. What does he mean by a revolution? And what is intended by “major entitlement overhaul”? His vision of entitlements mostly begins and ends with Social Security and Medicare. He has stated before the funding for those two payroll tax provisions should be included in the government’s finances. To that end he used the hammer of the Chairmanship to ‘nudge’ Congressional leaders to expand who was eligible for benefits making the expense much more than the revenue any time the economy had a cough. But his aim in the last writing was purely reforming these two bastions of America life.
This is known because he calls for greater contribution from Americans to the retirement system. He acknowledges this will be difficult (read: impossible) in the current economic climate but he contends “We have created a level of entitlements that will require a greater share of resources than the economy seems able to supply.” He adds, “We face a true revolution, not so much in the streets but in the fundamental choices the American people will have to make to secure our fiscal future. Arithmetic demands it.”
Why would a man committed to collapsing the fiat and going back to gold be worried about the collapse of the fiat? Don’t forget, he also wants a dramatically smaller government. Extensive cuts means the U.S. world footprint will have to be necessarily smaller.
This conclusion is substantiated by Tim Geithner’s remarks about the Greenspan editorial. Tax hikes, stated the Treasury Secretary, might be unavoidable as the deficit remains a deficit even if the gap is narrowed somewhat. “Tax reforms to increase revenue and changes to make our entitlement programs sustainable over time will require substantial additional changes beyond cost-cutting.”
Either way you try to slice the statements, the taxpayer will be called upon to relinquish more to the government and have less to take home for himself. Ain’t it great that our government can’t seem to trim its obligations but Main Street has to? And what effect, I wonder, will paying more taxes have on the economic ‘recovery’?
Greenspan was right, the “arithmetic” demands major changes; they just may not be the kind the current government and the bureaucrats want.
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That’s an iegninous way of thinking about it.