And for Your Final Act, Mr. Greenspan...

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By Goofyhoofy
September 7, 2005

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I wrote a post titled "Three years" but never filed it. The short version is that I am old enough to remember Vietnam, and the ramp up between 1965 and 1968, and the lack of patience on the part of the American public for a war that lasted much longer than "three years." Likewise Korea, although I was too young to notice, at the time. But I have also read that the American public was "tired" of World War II by the time 1945 came around, having lived through "three years" of that particular conflagration.

Well, anyway, if I'm old enough to remember Vietnam, then I'm old enough to remember the impact of massive budget deficits, which came thanks to LBJ's insistence of having "a Great Society", and a "Vietnam War", and not raising taxes to pay for any of it.

Inflation began accelerating around 1970, if memory serves, and we had a decade of it, ever increasing, baking into the economy before Jimmy Carter appointed Paul Volker to the Fed, who raised rates astronomically, which brought on the recession which swept Carter out and Reagan in, but which did crush inflation when people became more concerned about "saving their jobs" than "getting a raise."

So I'm noticing a few parallels here: big budget deficit, increasingly unpopular war, and lately "oil shock." That's one of the things which accelerated inflation, because virtually every product has an energy component: from getting the raw materials to the manufacturer to getting the finished product to the store shelves, not to mention that "oil" is a significant component of plastics, resins, and other materials vital to manufacturing.

So now I'm thinking: Greenspan is perched on the edge of "gigantic deficit", and on the one hand, "potential inflation." On the other, the economy is about to get a huge shock as a couple million people lose their jobs, at least temporarily. Much of Midwest manufacturing gets its raw materials through the Port of Southern Louisiana (it's the #1 port in the country, did you know that?), and 50% of farm produce flows back out for export through that same port.

It's September, and harvest begins, oh, about now.

Does that augur a recession? Can East and West coast ports even handle this volume, and is there a way to cheaply get that much agricultural production there? Does the deficit and energy spike presage inflation? Do the lost jobs of Louisiana et. al. ripple elsewhere through the economy? Or does the rebuilding flush so much cash through Home Depot and Halliburton that things look rosy?

Which way do you push the lever if you're in Greenspan's chair? Or do you do nothing at all and hope for the best?

And by the way, he retires in January. Won't it be just fun to see who comes in behind him? (I'm remembering Arthur Burns, who Nixon could and did push around, and who did not take positive action to halt LBJ's inflation, insuring that when the OPEC oil shock hit the economy and the market would hit the skids.)

No, I don't think everything is exactly the same. There are some interesting parallels though, and if history doesn't exactly repeat, as someone said, "It rhymes."

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