Quoting Al: Become a Complete Fool
In a highly flexible economy, such as the United States, shocks should be largely absorbed by changes in prices, interest rates, and exchange rates, rather than by wrenching declines in output and employment, a more likely outcome in a less flexible economy.
In other words, to prevent shocks and recessions, all we have to do is print more money and cause inflation. Gee, how simple can it be? This guy Greenspan sure is smart!
You also have to get somebody into just sitting on all this money, rather than spending it, otherwise inflation zooms out of control as too many dollars chase too few goods. Fortunately some people/companies/countries still think the dollar is useful as a reserve currency. As long as that continues, the hoards of unspent dollars keep piling up. Once the appetite for stashing dollars wanes raging inflation is released (as it was when the gold standard was broken in the early 70s).
Bernanke talked about a savings glut recently (and Mr. Plunger talked about it long before), but the reason we have "too much savings" floating around out there is because the Fed has been printing like crazy over the past 5 years, and Asian central banks have printed even faster to keep their currencies in line. Private banks then take the money created and multiply it 10 fold or more as they loan new money into existence. The result is piles of money finding its way into the global financial markets where it is seen as "the savings glut."
However, the poor laborer isn't saving the bulk of this money. More often it's the wealthy capitalist, corporate executive, or hedge fund manager, who has more money than he could ever want to spend. As more money is created and finds its way into the hands of those who are already rich, it becomes ever more difficult for working people to make ends meet or climb up the economic ladder through savings and investment.
Greenspan's solution to keeping the economy afloat is to print ever more money. This nearly constant over-stimulation has caused the flow of wealth out of the economy and ever more stimulation and foreign support has become necessary to preserve an illusion of economic health:
The trade gap continues to swell.
The money supply grows at a record rate.
The manufacturing sector continues to contract.
America's wealth continues to evaporate.
Life keeps getting tougher for working and middle class people.
Perhaps Greenspan actually thinks he's mastered the economic cycle, and all he has to do is print more money and everything will be fine. Perhaps he can't see how the unsustainable mess he has created eventually leads to a painful unwinding. Personally, I'm guessing that he hopes he'll either be retired or dead before the rest of the country figures out exactly what the Fed has done to the economy under his watch.
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