Monday, September 17, 2007

A Belated Admission

Alan Greenspan (AG) said, "'the presumption that we were fully independent and have full discretion [to set interest rates] was false',", 17 September. AG adds, "'I am coming to the conclusion that bubbles are inevitable. ... Human beings cannot avoid them. ... They cannot learn'."

Welcome aboard Alan! I've said this for 27 years: we repeat our grandfathers' errors. Now AG is where I was 27 years ago. AG now tells us the Fed is not independent. Anyone who knows US monetary history should know of the "period of the peg", from about 1942-46. During this time the Fed held long-term interest rates at 2.5% to finance World War II. The Fed has never been independent. It was never intended to be.

Suggested reading: Sidney Homer's History of Interest Rates and Karl Marx's Communist Manifesto (CM). Marx? Plank 5 of the CM reads, "Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly". Marx favored a "flexible currency" and central bank! To think, AG was a central banker, and a libertarian. Wow! What Orwellian "doublethink".

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