Guest Post: Alan Greenspan Asked For Advice, Do People Ever Learn?

BAM.  Thanks, Alan!  James Miller via Zero Hedge drops the hammer.  Excerpts:

Unbelievable.



That is the only way to express this author’s utter bewilderment that former Federal Reserve chairman Alan Greenspan is still given an outlet to speak his mind. Actually, I am surprised Mr. Greenspan has the audacity to show his face, let alone speak, in public after the economic destruction he is responsible for.
It was because of Greenspan, of course, that the world economy is still muddling its way along with painfully high unemployment. His decision to prop up the stock market with money printing under any and every threat of a downtick in growth, also known as the Greenspan Put, created an environment of easy credit, reckless spending, and along with the federal government’s initiatives to encourage home ownership, the foundation from which a housing bubble could emerge.


It was moral hazard bolstering on a massive scale. Wall Street quickly learned (and the lesson sadly continues today) that the Federal Reserve stands ready to inflate should the Dow begin to plummet by any significant amount. Following his departure from the chairmanship and bursting of the housing bubble, Greenspan quickly took to the press and denied any responsibility for financial crisis which was a result in due part to the crash in home prices. In his infamous 2009 Wall Street Journal editorial, he had the nerve to blame availability of credit which financed the run-up in home prices to a “savings glut” in Asia. He writes.

[T]he presumptive cause of the world-wide decline in long-term rates was the tectonic shift in the early 1990s by much of the developing world from heavy emphasis on central planning to increasingly dynamic, export-led market competition. The result was a surge in growth in China and a large number of other emerging market economies that led to an excess of global intended savings relative to intended capital investment. That ex ante excess of savings propelled global long-term interest rates progressively lower between early 2000 and 2005.

Sounds convincing right?

Much of the aura of greatness attributed to Greenspan throughout his term as chairman was due in part to the purposefully overly-technical language he used when talking to reporters. Here he utilized the same technique, albeit in a simpler manner, to obscure the Fed’s role in the housing bubble. His explanation falls on its face though when looking at key historical data and by asking the right questions.
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And as economist George Reisman brilliantly shows, the “savings glut” argument doesn’t stand when taking into account the following questions and observations:

First, if saving had been responsible, rather than credit expansion and the increase in the quantity of money, there would have been a corresponding decline in consumer spending in the countries allegedly doing the saving. The fact is that there was no such decline.

Second, saving implies a growing supply of capital goods, more production, and lower prices, including lower prices of capital goods and even of land. These are results that are incompatible with the widespread increases in prices typically found in a bubble.


Third, if somehow saving had been responsible for the housing bubble, the spending it financed would not suddenly have stopped. Such stoppage is a consequence of the end of credit expansion and the revelation of a lack of capital.


Fourth, if large-scale saving rather than credit expansion had been present, banks and other firms would have possessed more capital, not less. They would not be in their present predicament of having inadequate capital to carry on their normal operations. This situation of insufficient capital is the result of malinvestment and over consumption, which are the consequences of credit expansion, not saving.


Fifth, in the absence of increases in the quantity of money and overall volume of spending in the economic system, saving also implies an immediate tendency toward a fall in the economy wide average rate of profit. This is another result that is incompatible with what is observed in a bubble or boom of any kind, which is surging profits so long as “the good times” last.

It should be perfectly clear at this point that Greenspan holds the majority of the blame for the housing bubble. And yet many financial media outlets still see the former central banker as a type of guru on global economic affairs.

That reverence seems to be fading quickly.  By this fall, people should (finally!)have a very different opinion of Alan Greenspan, all the choices he's made, and where those choices have brought all of us. Right now, it's still the economists and information junkies and people his policies destroyed.  More to arrive shortly, to be sure.. 

Morgan Stanley Quantifies The Probability Of A Global "Muddle Through": 37%

Crap.  Zero Hedge.  Excerpts:

When it comes to attempts at predicting the future, it often appears that the most desirable outcome by everyone involved (particularly those from the status quo, which means financial institutions and media) is that of the "muddle through" which is some mythical condition in which nothing really happens, the global economy neither grows, nor implodes, and it broadly one of little excitement and volatility. While we fail to see how one can call the unprecedented market vol of the past 6 months anything even remotely resembling a muddle through, the recent quiet in the stock market, punctuated by a relentless low volume melt up has once again set market participants' minds at ease that in the absence of 30> VIX days, things may be back to "Goldilocks" days and the muddle through is once again within reach. So while the default fallback was assumed by most to be virtually assured, nobody had actually tried to map out the various outcome possibilities for the global economy. Until today..

The Point?

"A “muddle through” positioning is potentially dangerous: Our main message is that the muddle-through scenario might be the most plausible alternative, but its joint occurrence in the US and Europe is less likely than the result of a coin toss. Uncertainty is bad for multiples." Specifically - it is 37%

So, Economically, this is still The Lead Up..  Then things go boom!/Get bad..

Chinese TV Host Says Regime Nearly Bankrupt

The Epoch Times.  Holy shit; This guy's as good as dead.  Excerpts:

China’s economy has a reputation for being strong and prosperous, but according to a well-known Chinese television personality the country’s Gross Domestic Product is going in reverse.



Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece.


The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube.

In the unusual, closed-door lecture, Lang gave a frank analysis of the Chinese economy and the censorship that is placed on intellectuals and public figures. “What I’m about to say is all true. But under this system, we are not allowed to speak the truth,” he said.
And:
Lang’s assessment that the regime is bankrupt was based on five conjectures.


Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.


Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.


Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.


Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010).


Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said.

Once the “economic tsunami” starts, the regime will lose credibility and China will become the poorest country in the world, Lang said.

It looks like the Global Economic Collapse will now just come down to sequence:  Who collapses when, and Who starts the process.  Oh, and Who has it worse. 

That Loud Boom You'll Hear Is Greece Exploding..

The Real Deal begins later today.  My gut says Austerity measures pass, and Athens begins to ROCK shortly afterward..  If Austerity fails..  The Greek economy goes into collapse, and Athens begins to ROCK shortly afterward.  Maybe, maybe not.  But the Greeks do like to riot, and they're really good at it..  (By no means is this an insult, either.  The No Bullshit political will of the Greek people is inspiring to others living in more complacent regions of the world.  It's good to see that spirit alive and well..  Somewhere..)

Greece and Europe brace for austerity measures vote  The Sofia Echo.  Excerpts:

Greek lawmakers, under the watchful eyes of the rest of the world, are due to vote on a second round of austerity measures that sparked nationwide strikes and violent riots on June 28.

The vote will be held later on June 29.
The outcome of the vote will be vital for the stability of the European economy and for the future stability of Greece which is facing bankruptcy. Resembling a typical Greek drama, the voting process itself has become rife with accusations of betrayal and treachery following revelations in Greek media that there are mavericks in both camps who could sway the result unexpectedly.
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If the government fails to pass the austerity measures, Greece will go bankrupt. The proposed measures will affect the public sector and will consist of the sale of assets as well as higher taxes and more spending cuts.

Massive protests are expected on the streets of central Athens and outside Syntagma Square in front of the parliament building, protests which have the potential to turn violent judging from the past.

WRAPUP 2-Greek lawmakers seen backing austerity, future unsure  Reuters.

Greece's parliament looked increasingly likely to approve unpopular austerity measures on Wednesday, despite violent protests, to secure international funds to prevent the euro zone's first sovereign default.

But with the country on the brink of bankruptcy, it remains uncertain whether a weakened Socialist government can push through laws to implement structural reforms and privatisations in a second series of votes on Thursday, and then stick to a tight EU/IMF-imposed schedule for implementation.
Many economists and investors still expect Greece to default in the medium-term.

Greek leader 'dead man walking', Greek bailout 'collective punishment'  Video courtesy Russia Today, via You Tube.

Is the Chinese Economy Sputtering for the Same Reasons as the American Economy?

From Washington's Blog.  Excerpts:

It was tempting to believe that China was different.

With its command and control economy with some of the trappings of free market capitalism, trillions in reserves, and abundant natural resources, many thought that China would "decouple" from the Western world's problems and sail into a prosperous future.
However, despite its long history, exotic names and seemingly strong position, China cannot avoid the rules of economics which have applied to all countries throughout history.
And:
The Telegraph noted last June:



China's chief auditor has warned that high levels of local government debt could derail the country's economy, with some observers suggesting that a number of Chinese provinces are even more fiscally-troubled than Greece.
 
Few countries will come through unscathed when the global economy tanks.  And I do think China looks stronger than it actually is..