Greenspan: They Missed Meltdown, Could Miss Again

Posted: Jun 06, 2011 12:01 AM

Very rarely do I watch the cheerleaders and spinmeisters on CNBC. 

I used to be hooked like most, but got turned off by the daily walk in fantasyland and liberal political posturing. 

Much to my surprise, I found myself glued to a recent interview with the maestro, Alan Greenspan, on none other than CNBC. 

Shockingly, I found an ally regarding my economic thesis and approach to the financial markets. 

As you know, I believe that THINGS are not improving. 

As a matter of fact, they’re sliding deeper and deeper into the abyss.  (Thus, preservation of capital is paramount.) 

However, most economists’ models show just the opposite. 

The Keynesian approach would have you believe that “God’s in His heaven and all’s right with the world.” 

My new best friend, the maestro, concluded (I’ll paraphrase): If the Fed and IMF have the best models and they missed 2008, why isn’t it reasonable to believe that second line econometric models could and would miss the current reality.

I’ve stated that the stimulus gave only a temporary relief to the economy and would prove transitional to more severe times.  (Thus, preservation of capital and income is vital.) 

My new hero, Mr. Greenspan, stated the banks haven’t even used up QE1 reserves yet, and are sitting on QE2, parked at the Fed and drawing interest. 

That’s over $1.5 trillion dollars not being lent either for lack of demand or stringent terms and conditions, or both. 

I take exception with Mr. Greenspan declaring the banks haven’t used the money for lending.  They’ve certainly lent it to the banks for use in the stock and commodity markets. 

However, we both concur that when the Fed takes that money back, it could prove interesting and tumultuous. 

Finally, the former Fed Chairman said there would be no, that’s NO, recovery without construction being revived, while Case-Shiller reports the continued decline in housing prices. 

Greenspan believes that no real recovery is in sight without the 2 million lost construction jobs coming back, and house prices finding somewhat of a floor, sooner rather than later. 

That would be the real sign that we’ve turned the corner.  Until then, Keynesian models, cheerleading, and spinmeistering are all just smoke and mirrors coupled with wishful thinking.

That makes preservation of capital, income, and liquidity paramount, and leaves growth far behind. 

Gee, a new best friend who’s in my camp, and a return to an old TV network (briefly) all in one day. 

More than a fella can stand.                       

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