Sunday, January 11, 2009

Greenspan's flaw

Testifying before Congress on his role in the financial debacle we are now suffering, Alan Greenspan, longest-running chair of the Federal Reserve, admitted to a “flaw” in his world view that prohibited him from recommending more federal oversight on the banking industry:

"Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist you need an ideology. The question is, whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw, I don't know how significant or permanent it is, but I've been very distressed by that fact...A flaw, a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak...I was shocked because I had been going for forty years or more with very considerable evidence that it was working exceptionally well...

I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms...

Free markets did break down. And I think that, as I said, shocked me...

I still do not fully understand why it happened. And obviously to the extent that I figure out where it happened, and why, I will change my views. And if the facts change, I will change." Alan Greenspan testifying before Congress 23 Oct 2008.

The good doctor had his Fed doublespeak in full gear, but the general interpretation of financial pundits was that Alan overlooked the third deadly sin – greed.

Considering that the entire capitalist system appears to be built on greed, who can blame him?

The last thing I want to do is enter into a theological argument, but where do you draw the line between self-interest and greed? Is greed alone a bad thing? Without the power to act on greed, greed is powerless. As greedy as I am (I am an ardent gambler on horses), my greed goes unfulfilled because I have very little power to act upon it.

It takes money to act on greed, and as Willie Sutton famously reminded us, banks are where the money is. Deregulating banks, or any large corporations for that matter, enables greed to act.

Greed, alone, is harmless. I'm sitting here greedily wishing for millions of dollars as I type this.

When fair profit becomes unfair is the line between earned income and unearned. In a free market, this point is crossed when the inferior bargainer (the one without lots of money) loses fair choice.

I think most people will agree that they have never had fair choice in the marketplace. The goods they desire seem overpriced and the pay they earn seems far too low. Is this illusion or reality?

The price you pay for things is based upon the cost to create them. Part of the creation cost is the accumulated debt of the company creating the goods. In order to stay in business, businesses must charge enough to make a profit against costs, and a great portion of cost today is taken up by interest payments on accumulated debts.

As debt accumulates, prices rise. Debt drives inflation, but what drives debt?

Debt is driven by interest, or what was once called usury. Usury is the demand of unearned interest on a loan. Why is it unearned? No work was performed to generate the additional money. Greed.

When money is loaned at interest, the money to repay the interest is never created even though the sum of the interest is often two or three times the original debt. Where does this money to pay the interest come from? It comes from more people agreeing to assume more debt.

As long as you have enough suckers borrowing more money, the pyramid scheme of usury money will work until there is so much money borrowed that it is impossible to pay even the interest on the debt. It's a Ponzi scheme with guaranteed failure.

So here is Greenspan's real flaw, one he refused to disclose. Greed in a fair, free market cannot destroy the market because real players, with real choices, will refuse to pay high prices. If you can limit the public's choices, then you can force them to play a fixed game.

Our governments, run by the central bankers (world-wide) have empowered greed by allowing usury to accumulate debt owed to the banksters. Debt, public and private, is refinanced to the point that interest can no longer be paid.

Growing indebtedness creates nations of slaves, toiling their lives to repay ever-growing sums of money that never actually existed in the first place.

This is where people get very confused about money. They think it's as hard for a bank to obtain money as it is for them. The people must sweat and haul rocks to earn their paychecks, but the banks simply create money “out of thin air” to loan to them. The idea of creating money from nothing pisses a lot of people off, once they understand how banking really works.

People get confused that creating money from virtually nothing is the problem. It sounds like it is, but it really isn't. That is the beauty of how the governments and the banks have gamed you! Even if you begin to understand how things work, you get sidetracked into thinking debt itself is bad.

Debt is good. Debt greases the wheels of commerce. This is the reason for the infamous bailouts, to "get credit moving again." Credit/debt is useful.

Interest on debt is very, very bad.

Remember, debt grows with interest and inflation grows with debt. The root evil is interest.

The bailouts don't end interest payments, they merely keep the present corrupt system on life support. The bailouts are bad. Very, very bad.

Greenspan identified the vice of avarice, but greed alone is powerless. Government legalizing interest is greed's empowerment. Without the power to act, greed is toothless. The US government is now feeding the greed by borrowing your (future) money, giving it to the banks and urging the banks to loan it back to you at interest! Such a scam!

Governments and the people who control them (banksters) understand everything I've outlined. They have done everything in their power to ensure that you do not understand. They have invented the “science” of “economics” to confuse and obscure our understanding of money.

Unless a economist admits that usury, not greed, faulty computer models, lack of liquidity or sub-prime mortgages caused our problem, he is either a liar or an idiot.

Until the government admits the problem of usury and outlaws all unearned income, there is absolutely no hope for any economic recovery.

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