Monthly Archives: February 2010

Alan Greenspan “Takes On His Critics”

The March 1 edition of Fortune Magazine has an article titled “Alan Greenspan Fights Back.”  The link is found here.

I found the article interesting for a variety of reasons. As the article mentions, rarely has Greenspan addressed his purported culpability in creating the housing bubble and its accompanying impact on the economy.

Greenspan’s tenure at The Federal Reserve is most fascinating.  One aspect of this is how his performance was perceived over time.  Throughout most of his tenure he was effusively lauded (i.e. “The Maestro”) – but this widespread acclaim has been (severely) tarnished over the last decade.

As the Fortune article says, “Four years after leaving the Fed as the Greatest Central Banker Ever, the longest-serving chairman, the Maestro, Alan Greenspan is the designated goat.”

As the article indicates, Greenspan is preparing a 12,000-word article in his defense.  I look forward to seeing this article and analyzing his argument.

As far as Greenspan’s performance and actions are concerned, I do not believe there has been an accurate assessment yet provided.

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SPX at 1102.41 as this post is written

Keynesian Theory – A Few Comments

Up to this point, I have yet to mention “Keynes” or any derivative thereof.  The reason for this is simple – I don’t believe that the efforts taken to stimulate the economy are reflective of the theories that Keynes espoused.  Instead, they are a type of “bastardized” Keynesian Theory – used by various parties in an attempt to “legitimize” the tremendous amounts of money spent on various stimulus plans.

I’ve been meaning to write a blog post about this and other related topics.  I still intend to write a fuller post.  However, what prompted me to write about this now is a very interesting article I ran across in Fortune Magazine.  It is a February 5 interview with Allan Meltzer and can be found at this link.

As Meltzer indicates in the interview, Keynesian Theory is not aligned with the stimulus actions we, as a nation, have undertaken.

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SPX at 1105.24 as this post is written

The Effectiveness Of Stimulus

“One of the biggest economic myths since the Great Depression is that governments can ameliorate or counteract the ebbs and flows of free markets. Government spending has never worked as a trigger for sustained and vibrant economic growth. Ever. Scholarship has demonstrated that the New Deal perpetuated the Depression rather than cured it. On the eve of the Depression the U.S. had the lowest unemployment rate among developed nations. But a decade later, despite six years of FDR’s New Deal, our unemployment rate was one of the highest among developed economies. Japan’s serial stimulus programs over the past two decades have repeatedly underscored this truth.”

Steve Forbes, Forbes Magazine, March 1 2010 p. 11 (link found here)


I have written extensively about interventions, which includes stimulus spending.   Stimulus spending and interventions are widely (and wildly) misunderstood.

I think it is very important to have a full understanding of how the ARRA, a  very large stimulus, is performing.   As I wrote in a July 9 2009 blog post in which I discussed the ARRA, “Even if one were unabashedly pro-stimulus, one would find some serious faults with the $787 Billion stimulus plan, as enacted.”  As such, it should be of little surprise that the ARRA has been, at best, such a poor performer when analyzed in a variety of manners.

Here is a recent article from Alan Reynolds concerning the effectiveness of the ARRA.   Although I don’t necessarily agree with some of his conclusions, he does present some interesting statistics and views with regard to how the ARRA has performed.

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SPX at 1102.34 as this post is written

Tax Increases And Our Economic Situation – Follow Up

On October 16 I wrote a post titled “Tax Increases And Our Economic Situation.”  That post can be found at this link.

Some may wonder what tax increases I am referring to, as at least headline tax rates have yet to increase in many areas.  Tax increases have been deferred for many reasons.  Among these reasons is the negative political ramifications of raising taxes before the upcoming November elections.

However, if we are to at least partially curtail our current deficit levels, an increase in taxes is likely certain.  Everyone should know this, at least intuitively; and I believe there is widespread recognition of these impending tax increases.

Thus, our current economic situation is such:  economic weakness that is met with stimulus / deficit spending – that then leads to tax increases.  These tax increases – during a time of economic weakness – will likely weigh (very) heavily against any lasting economic recovery.

This situation may not be inherently problematical if the stimulus / deficit spending was indeed highly economically stimulative.  However, if it is not (and there is little if any evidence that recent stimulus programs have been), a “vicious circle” may form – with large stimulus / deficit spending driving ever-higher taxes – with the net result a weaker – and more highly-indebted economy.  This weaker economy in turn drives higher stimulus / deficit spending – and ever-higher taxes.

There are a lot of complexities and other factors at work in this relationship; however, such an in-depth discussion would be too prohibitively lengthy and complex for a blog post.

However, as one can envision, this “vicious circle” can become very pernicious on many fronts.

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SPX at 1107.93 as this post is written

A Notable Poll On Economic Conditions

Here is poll (in PDF format) on economic conditions that I believe is highly notable.  It is from CNN and was conducted February 12-15, 2010.

The question presented was “How would you rate the economic conditions in the country today — as very good, somewhat good, somewhat poor, or very poor?”

A total of 83% replied economic conditions were “somewhat poor” or “very poor.”  44% of respondents said conditions were “very poor.”

Of further note, when one looks at the trend of the responses, there hasn’t been much of an improvement from year-ago levels.

Although this is only one survey, I think it is notable in that it seems to belie many other economic statistics that have been used to support the widely-held theory that we are in an economic recovery.

This survey seems to support other statistics that indicate that many people believe current economic conditions to be poor – if not very much so.  However, at the same time, some economic conditions surveys (and various economic indicators) show expectations for a strong economy in the future.  One example of this was noted in my January 4 post, which is found here:

In my opinion, this large dichotomy can not, and will not, last.

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SPX at 1108 as this post is written

The February Wall Street Journal Economic Forecast Survey

The February Wall Street Journal Economic Forecast Survey can be found at this link.

There wasn’t much change in the survey results from last month.  Also, as seen in the detail, there hasn’t been much change for many of the parameters for the last few months.

As I have previously commented, I find it highly notable that there is such a “tight” consensus among the forecasters – especially for the major forecasting categories such as GDP and unemployment.

This is supported by the following from the survey:

“The White House released its economic forecast Thursday, projecting payrolls will increase by an average of just 95,000 a month this year with the unemployment rate averaging 10%. The Council of Economic Advisors expects GDP growth to be about 3% in 2010, in line with the surveyed economists.”

This survey also asked respondents to rate the economic performance of Ben Bernanke, Treasury Secretary Geithner and President Obama.  On a 1-100 scale, President Obama got an average score of 57, Treasury Secretary Geithner got an average score of 60, and Ben Bernanke got an average score of 78.


I post various economic forecasts because I believe they should be carefully monitored.  However, as regular readers of this blog are aware, I do not agree with the consensus estimates or much of the accompanying commentary.

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SPX at 1105.38 as this post is written

The Quality Of Deficit Spending

In the Wall Street Journal on Saturday, February 13 there was an editorial titled “High-Speed Spending.”  This discussed the dubious financial dynamics of a long-proposed “high speed” Orlando-to-Tampa rail project.

I also heard of a proposal to do a similar project between St. Louis and Chicago.

I have lived in the Chicago area for most of my life and have never heard anyone expressing a desire to have faster transportation (or such a “high speed” rail option) between St. Louis and Chicago.  Yet, in this case, as in the Orlando-to-Tampa case, the proposed “high-speed” rail project would cost billions of dollars.

If we are looking to spend money on infrastructure, perhaps it would be wiser to spend on our existing infrastructure, which is literally crumbling.  Estimates to fix our existing infrastructure range into the trillions of dollars.  These estimated figures are rapidly growing.

Examples of wasteful deficit spending are innumerable, unfortunately.  In my opinion, we, as a nation, are not in a position to waste any money at this point.

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SPX at 1102.12 as this post is written

Editorial Of Note: “Greece’s Crisis: A Warning To Profligate U.S.?”

On February 10th an editorial by Scott S. Powell appeared in Investor’s Business Daily titled “Greece’s Crisis: A Warning To Profligate U.S.?”  The link can be found here.

I am highlighting this editorial as it discusses many important issues, most of which I have previously mentioned on this blog.  As well, it compares our current financial situation to that of Greece’s.

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SPX at 1099.51 as this post is written

The US Dollar And Asset Prices

Over the last few years, there has been an inverse correlation between price movements of the US Dollar and many asset classes.  This inverse correlation appears to be strengthening over time.

This inverse correlation can be seen in the chart below.  For the sake of simplicity, I am only comparing the USD to the S&P500 – but as aforementioned this inverse correlation can be seen among a diverse group of assets.

Here is the 10-year daily chart.  As one can see, the inverse correlation appears to have started roughly during 2003, and has persisted to the present:

chart courtesy of

While this inverse correlation has been frequently commented upon in the media, there are two aspects of this relationship that I have not heard discussed.  First, what is causing this inverse correlation?  Second, shouldn’t the existence of this relationship cause some unease?

The answer to both of these questions is likely complex.  However, I do believe they are very important issues.

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SPX at 1094.87 as this post is written

Debt And Taxation

On Saturday The Wall Street Journal had an editorial titled “Escape from Taxation.”  The link is here.

In the editorial, it is mentioned that higher-income people are moving out of New Jersey as the tax rate is increased.

In my article “America’s Trojan Horse” found at this link, I discussed the widely-held fallacy that debt and deficits are almost inconsequential because governments can always increase taxation to service and repay debt.

What is happening in New Jersey is an important example of how this “increasing debt / increasing taxation” dynamic plays out in the “real world” – especially during times of prolonged economic stress and high indebtedness.

The implications are very far-reaching with regard to the resolve of heightened levels of indebtedness.

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SPX at 1083.50 as this post is written