Greenspan in China: Not the Opera (Yet)
Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession has been translated into Chinese. Professor Fan Zhiqiang at Fudan University in China translated Panderer. He asked me to write an article about Greenspan, which is below.
I wrote an introduction to the Chinese translation that can be read here.
Professor Fan Zhiqiang wrote to me in May 2014:
"I am happy to tell you that, on the website of Fudan University Press, a comprehensive academic publishing house of key importance in China and in the World, you can find the announcement and linkage of the Chinese version of your wonderful book Panderer to Power through http://www.fudanpress.com/root/showdetail.asp?bookid=9349.
"On May 12, I sent two of my translation books with my signatures to your home. You may receive them within a few weeks. Both books are published by Fudan University Press. One book is my translation of Mark Twain's short stories. It is jointly recommended by Mr. Mo Yan, the Winner of 2012 Nobel Prize in Literature, and other literature figures. [Received. - editor]
"Prof. BA Shusong, the Chief Economist of China Banking Association, is very famous in the financial and economics circle and the world at large. His Sina Weibo (microblog) http://blog.sina.com.cn/s/blog_12b97ea6a0101ffqj.html#bsh-24-407900519) has more than 7 million fans. [Exceeds the number of AuContrarian fans by over 6.9 million. - editor] Fortunately, Prof. BA Shusong has kindly recommended my translation of Panderer to Power on his Sina Weibo. [This exceeds the number of professors in the United States who wrote about Panderer to Power on their websites, or anywhere else, by exactly - one. FJS]
"Some Chinese websites are also publishing the book reviews of my Chinese version of your Panderer to Power. For example, the website of the famous Phoenix TV, a subsidiary of US News Corporation, published some comments on this book on May 11, 2014. (Please log onto http://news.ifeng.com/a/20140511/40244287_0.shtml)
"Currently, it is selling well on Amazon China. It was ranked No. 18 in the economics section last week [Two weeks ago now. - FJS] according to the website http://www.amazon.cn. Interested readers can buy this book through the following linkage: http://www.amazon.cn/.
That's the end the good news. I will send a separate "Amazon page" that links to Amazon China. Whether or not you plan to buy a Chinese edition of Panderer, it's interesting to see. At least, to me.
Now to You-Know-Who:
Greenspan in China
This book is about the influence of Alan Greenspan. Specifically, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession explains how Alan Greenspan was able, when he was chairman of the Federal Reserve Board, to twist finance and the minds of the average American.
I am not writing here about the life of Alan Greenspan. For this article, I discuss the great influence Alan Greenspan - through the central bank - had over Americans. Secondarily, this is the story of how concentrated power in a few men's hands helped only a few people. Alan Greenspan's decisions made the average person poorer.
A question the reader may ask, upon reading this article, is why I have not written about the time after Alan Greenspan left the Federal Reserve in January 2006. There is not room to discuss Federal Reserve Chairmen Ben Bernanke and Janet Yellen, here. But, all that they have done - to the United States and the rest of the world - was set in motion by Alan Greenspan. Financial, economic, and social turmoil that has gotten worse during the Bernanke and Yellen chairmanships finds its source in the actions and words of Alan Greenspan.
The Federal Reserve is the central bank in the United States. It sets the monetary policy of the U.S. Since the U.S. dollar is still the currency in which most of world trade is conducted, every other central bank in the world is restricted in its ability to conduct a national monetary policy, when the Federal Reserve is run by a reckless chairman. Under Alan Greenspan, who was Federal Reserve chairman from 1987 to 2006, the Federal Reserve consistently held interest rates too low by pumping more dollars into the economy than were needed to conduct business. Some of the "extra" dollars flowed overseas, which is how Alan Greenspan restricted the ability of central banks, including China's, to do what it thought was the best policy for the country.
Until 1971, central banks could not decide, by themselves or among themselves, what the world's interest rates would be. The gold standard prohibited a handful of men (they were all men at the time) from sitting around a conference table with such power over the average person's life. On August 15, 1971, President Richard Nixon announced the United States would no longer redeem currencies presented to the United States Treasury in return for a specific amount of gold. The result of August 15, 1971- both in the United States and abroad - was to create tremendous distortions. (This is a necessary simplification of both the "gold standard" and of "August 15, 1971," given the length of this article.)
The 1970s was a decade of high inflation. Once President Nixon had freed the Federal Reserve from the discipline of a gold standard, the Fed started "making up" monetary policy. This caused turmoil during the 1970s. The currencies (of the United States, the European countries, and Japan) swung violently in relation to each other as did interest rates, unemployment, and prices.
These distortions were reduced in the 1980s. They were not eliminated, but economists in the United States took advantage of the average person's ignorance by saying over and over that Paul Volcker (who was Federal Reserve Chairman from 1979 to 1987) had "gotten rid of inflation."
The American economists have erased William McChesney Martin from history. Martin was the Federal Reserve chairman from 1951 to 1970. In the 1950s, he faced increasing pressures from university economists (mostly at Harvard) who said "the United States economy needs to have inflation so that we can have full employment and we can compete with other countries."
Martin said "No." He fought the politicians, Senators, and Congressmen who wanted the Federal Reserve to produce inflation. The Inflationists had decided the U.S. economy needed prices to rise at a rate of 2% a year.
Why did they want inflation at all? Because, in the short-term, if a central bank "prints extra dollars," the politicians can use the inflated number of dollars to spend money they would not otherwise have. This is known in the United States as politicians "buying votes." That is not always what they are doing. Politicians sometimes have a genuine interest in helping the people. But, creating dollars from nothing only works in the short-term.
On August 13, 1957, Chairman Martin testified before the Senate Committee on Finance. Regarding the target of a 2% institutionalized inflation rate, Martin said: "[Two] percent may not seem startling [but] the price level would double every 35 years and the value of the dollar would be cut in half each generation. Losses would be inflicted on millions of people, pensioners...all who have fixed incomes.... [T]hose who would turn out to have savings in their old age would tend to be the slick and the clever...."
Martin told the Senators the person most likely to be injured in the inflationary cycle was the "'hardworking and thrifty...little man' on fixed income who could protect neither his income nor the value of his savings."
In Panderer to Power, my book about Alan Greenspan, I show how the slick and the clever were able to concentrate and leverage paper assets over the next half-century. No one did more to launch the slick-and-the-clever into isolated comfort, secluded from the average American, than Alan Greenspan.
Back when William McChesney Martin argued against the proposed 2% inflation target, he stated: "There is no validity whatsoever that any inflation, once accepted, can be confined to moderate proportions."
Martin said, at a different hearing: "We are dealing with waste and extravagance, incompetency and inefficiency, the only way we have in a free society is to take losses from time to time. This is the loss economy as well as the profit economy."
That is one of the greatest problems today, engendered by interest rates that have been too low since the early Greenspan Years. Incompetency and waste go on and on, subsidized by price fixing. One form of price fixing when Alan Greenspan was chairman was to push and hold interest rates at much too low a rate. This allowed companies to borrow money when they should have gone out of business. By not going out of business, they made it harder for well managed companies to earn enough money to grow, to hire more workers, or to stay in business, themselves.
Also, by holding interest rates too low, people were able to borrow when they did not have the ability to pay back the loan. Alan Greenspan coaxed millions of people who should not have bought houses into doing so. He did this to keep the U.S. economy operating at a faster pace than it could have without the Greenspan Fed's manipulative policies.
The years since Alan Greenspan started pushing interest rates too low have been very inflationary. American economists say: "There has been no inflation." Recently, these very well paid economists have claimed "inflation is too low."
This is not true for two reasons. First, the prices the average person pays (for food, gas, a doctor, a house: the things they need) have risen much faster than their wages have risen. That is what matters.
Second, prices of assets, including stocks, bonds, houses, and commodities have risen to a tremendous degree since Alan Greenspan became Federal Reserve chairman. Most of these assets are owned by a small part of the American population.
This is not only true in the United States, of course. There are many other reasons for the financial, economic, and social turmoil of 2014. Without understanding the Federal Reserve's role under Alan Greenspan in "creating" false and distorted living standards, studies about the destruction of the monetary unit (the dollar) and of family life in America and elsewhere ignore the elephant in the middle of the room.
Frederick Sheehan writes a blog at www.aucontrarian.com