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Well, at least during the first five years of this century Greenspan actively encouraged a relaxation of lending standards in real estate. What US actions, other than the relatively low interest rates, contributed to the Asian and Russian debt crises? I thought that the US banks got to play in a carry trade financed by cheap US money. The Y2K bubble was certainly also encouraged by direct spending on infrastructure and rationalized as a prophylactic against Y2K bugs. But thanks for the comments about the feasibility of bubbles even with high interest rates. At this point that is an historical curiosity, living as we do at the lower bound of interest rate policy.

As to goldbuggery, I certainly do not recommend return to a gold standard. That would be a disaster. But I do strongly suspect that the price of precious metals has been strongly manipulated downwards for psychological impact on market participants and that, especially in the silver market, this has gotten out of control. It IS a very small market but, if some of the PM analysts are right about the size of the naked shorts, an unwind could do major damage to JP Morgan.

I missed most of the bull markets in stocks due to believing, not without reason, that the basics were bullshit. I think I have finally found a way to play bullshit to my advantage, especially in silver, where I am approaching a 200% gain since Aug. '09, so indulge me that, ok? There are risks, but doing nothing seems even riskier. After all, "Strong Dollar" doesn't buy much gas these days.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Apr 26th, 2011 at 12:17:48 PM EST
[ Parent ]
ARGeezer:
What US actions, other than the relatively low interest rates, contributed to the Asian and Russian debt crises?
I thought the Assian and Russian debt crises of 1997-8 were due to liberalization and deregulation of the respective economies, with "hot capital" coming from the US playing the role of the trigger, not the primer.

The important US actions were through policy influence on the IMF, the close ties between the latter and the US Treasury, and propaganda bombardment about the superiority of deregulated capitalism as an economic model.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue Apr 26th, 2011 at 12:33:13 PM EST
[ Parent ]
You are right. A look at the St. Louis Fed's site shows that rates ranged from 8.2% in January 1009 down to 2.96% in April and December of 1993 and then back up to 6.05 in April of 1995 and back down into the mid 5s by Jan. 1996, where it remained until 1Q 2000, when it began its climb back to above 6.5% by Sept. 2000, (happy election, W), to drop back down to mid 5s in Feb 2001, from where it dropped to 1.01% by Sept. 2003.

And that was surely an improvement over the drastic rates that prevailed in the early 90s and in the 80s. A case could be made that Greenspan didn't really turn malignant until "W" took office. But with the Clinton Administration running a budget surplus in 2000 a significant tightening by the Fed could reasonably be expected to burst the tech bubble, which may have been the intent. So Greenspan could more likely be accused of keeping policy too tight under Clinton.

Of course there was the ongoing deregulation of the financial sector and the policy direction of supporting sending manufacturing offshore that had been explicit in NAFTA but which showed up more strikingly with China. Perhaps, as you suggest, diplomatic pressure on various financial agreements was more important to the various '90s bubbles. On the home front refusing Brooksly Born  the authority to regulate derivatives, for which she had been advocating for some time, which came to a head in May, 1998 and which was strenuously opposed by Greenspan, Rubin and Summers, who were joined by in early May by Arthur Levitt, Chairman of the SEC.

Had she gotten the authority in early 1998 that would certainly have been blamed as THE cause of the LTCM collapse later that year and attempts likely would have been made to hang the Russian and Asian crises around her neck as well. Had she gotten the authority earlier, say in 1995, some of these crises may have been averted or mitigated, but we will never know.

Thanks for forcing me to look at the record regarding interest rates. Somewhere I had gotten a false impression of Greenspan's activities in the '90s.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Apr 26th, 2011 at 03:08:26 PM EST
[ Parent ]
A case could be made that Greenspan didn't really turn malignant until "W" took office.

Oh no, 'Bubbles' Greenspan has always been a malignant little toad. Under Ronnie Raygun he pushed for higher payroll taxes and lower marginal taxes. Under Clinton he simultaneously helped block regulation of derivatives and did his best to strangle the recovery with his austerity nonsense. And under Bush the Lesser, he was cheerleading on bubbles and pushing for more deregulation.

He is, bar none, the worst chairman the Fed has ever had. And yes, that includes the Volker chairmanship that killed off half the US manufacturing base.

Which is why it's a little depressing to see him slimed for the one single sound policy decision he has ever made. It's such a target rich environment that there really should be no need for friendly fire.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 26th, 2011 at 03:48:37 PM EST
[ Parent ]
Well, at least during the first five years of this century Greenspan actively encouraged a relaxation of lending standards in real estate.

Yes. Precisely. Go after him for that, not for his interest rate policy. There is nothing wrong with low interest rates. There is everything wrong with adjustable-rate mortgages and NINJA loans.

What US actions, other than the relatively low interest rates, contributed to the Asian and Russian debt crises?

The Asian crisis didn't have much of anything to do with US policy - that was driven by the end of the Yen carry trade, a carry trade that had gotten started in the deflationary environment in the early '90s, which was caused by the bursting of the 1980s Japanese bubble, caused in turn by aggressive offshoring hollowing out the real value added by the Japanese economy.

The Russian crisis was caused by Timmy Geithner and the rape-and-run "transition" policies foisted on Russia during the '90s.

The Y2K bubble was certainly also encouraged by direct spending on infrastructure and rationalized as a prophylactic against Y2K bugs.

And the repeal of Glass-Steagall, and the deregulation of the futures markets, and the (further) deregulation of mergers and acquisitions, and the lowering of the corporate tax rate.

But thanks for the comments about the feasibility of bubbles even with high interest rates. At this point that is an historical curiosity, living as we do at the lower bound of interest rate policy.

No, it's not, because unless you remember that bubble formation is independent of interest rates, you risk concluding that bubbles require low interest rates, and that high interest rates can kill bubbles before they kill the rest of the economy.

But I do strongly suspect that the price of precious metals has been strongly manipulated

Well, duh. The price of precious metals is nothing but manipulation. The principal commercial use of precious metals is as a component of Veblen goods - goods that are valuable (almost) exclusively because they are expensive. And even that is dwarfed by the transactions that are purely speculative in nature.

The gold bugs are just bitching that central banks are muscling in on their turf and manipulating the price down instead of up. Because that prevents said gold bugs from fleecing the suckers who go "ooh shiny" quite as hard as they could otherwise. Oh, central banks have no proper business playing that game. But of all the things central banks do that they have no business doing, that strikes me as by far the least harmful.

I think I have finally found a way to play bullshit to my advantage, especially in silver, where I am approaching a 200% gain since Aug. '09, so indulge me that, ok?

By all means, if you've found a way to make money in the precious metal markets, then don't let the fact that it's disconnected from any economic fundamentals discourage you. I like you better than the other croupiers at that particular casino, so I don't begrudge you the money or anything. I just don't see what it has to do with macroeconomics or currency policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 26th, 2011 at 02:13:47 PM EST
[ Parent ]
JakeS:
what it has to do with macroeconomics

I think since it is a market where central and big banks play it is important to keep an eye on it. Like CDOs, it is not important in itself but if it gets out of hand you get banks losses, losses transfered to public debt, austerity, etc. By keeping an eye on it now, mounting the argument goes faster if/when it goes down the drain. So while not a gambler I appreciate ARGeezer's reporting.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Apr 27th, 2011 at 03:34:13 AM EST
[ Parent ]

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