Bill Holter

Alan Greenspan "GATA's Missed Opportunity" Part 2

October 30, 2014

In part one, I recounted Alan Greenspan's one on one interview with Gary Alexander.  Later in the day Saturday, Alan Greenspan was part of a round table with Porter Stansberry and Dr. Marc Faber, moderated by Mr. Alexander.  While both Stansberry and Faber had a couple of good "zingers" for Mr. Greenspan early on and they both had good points and additions to the discussion, I want to concentrate on what Alan Greenspan had to say.  Before getting to part 2, I do want to make one correction to yesterday's piece.  I heard Mr. Greenspan's reply to the question "where will interest rates and gold be five years from now?" as "higher...considerably."  I have been corrected several times, his exact word was "measurably," I apologize for misquoting

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If you remember, in part one Alan Greenspan told several white lies.  One regarding the leasing of gold by central banks, the Fed never speaks with the Treasury regarding debt/deficit levels, while another was diverting the blame for the housing crisis to Fannie and Freddie amongst other factors...but not the Fed.  The key from GATA and the gold community's point of view was Greenspan's denial of gold leasing and the question "do you recall testifying before Congress where you stated central banks stand ready to lease gold in increasing quantities should the price of gold rise?"  This question by Gary Alexander was flubbed miserably and we may never get this opportunity again, I will finish with what and "how" I think it happened but first I'd like to lay out what the former chairman had to say.

While Mr. Greenspan spoke of many topics, there were too many and some even irrelevant in my opinion to recount them all, the following is what I found important.  The talk began with the topic being "the savings rate."  Alan Greenspan went back to his old spiel of "productivity" and said that the system of entitlements was crowding out savings.  He used an equation of "more benefits=less growth" and there is no way out or around this, we have been eating our seed corn.  I agree as it is the common sense which is so "un" common in Washington but I guess one must leave the beltway before it hits them in the forehead?

Next, the conversation shifted to government spending.  Greenspan continued his attempt at cleansing his legacy by saying "it's Congress's fault for spending, the Fed HAS to buy Treasury debt or else interest rates will explode."  Gary Alexander then asked him, "So you are saying the Fed is not independent?" and the reply much to my surprise was "I never said it was independent."  Before going any further, I think this point is important for several reasons.  First, why should interest rates explode if the economy is self-sustaining and government is spending within its means?  Was the economy (and Treasury) being bottle fed even all those years ago through the late 80's and 90's?  What would have happened if the Fed was not so accommodative?  Higher savings, less debt, a lower standard of living then but a higher one in the future?  Would any of the bubbles have been blown and subsequently popped or would we have had lower yet more sustainable growth?  I think we all know the answers to this.

The question of China's growth was next, Greenspan called it "phenomenal."  He said much of the growth was due to "stolen technology" and that productivity would necessarily be slowing in the future.  He touched on the "shadow banking" system within China and suggested it to be a huge problem, as you know, I have harped on this topic for quite some time myself.

The next question was very interesting, the panel was asked what will happen to the Fed's $4.5 trillion balance sheet with QE winding down, what will Fed policy be?  Porter Stansberry was quite blunt and said there is "mathematically no way out" (does this sound familiar to readers?) and that we will live with QE forever.  Faber agreed and added that real interest rates would have to remain negative indefinitely.  He added that central banks all over the world have "distorted" financial markets and QE cannot be withdrawn.  Alan Greenspan took a pass on this one and posted a "no comment" as he said Paul Volcker never spoke publicly or second guessed him while chairman and he would do the same.  He did say "the Fed is very smart" and they know everything "we" do.  What was really interesting to me was when he added that "a lot of money can be created until everything blows up".  He talked again about how huge bank balance sheets are the kindling wood (he used the word "tinder") for hyperinflation if and when velocity does pick up..."no one can forecast 5 years out."  I guess my question to him would be as follows "could banks carry such huge balance sheets if the Fed did not facilitate it with blowing their own balance sheet past the moon and then offering a free 1/4% interest to any bank willing to play?"  Mr. Greenspan was given a pass here in my opinion.

Porter and Marc were then allowed to ask Mr. Greenspan one question each.  Sad to say the two questions were somewhat soft and certainly NOT what I would have asked.  They asked "you have said that bubbles are very hard to spot, are we in one now?" and "would you do anything differently now if you had the chance?"  Greenspan's answer to Porter was pretty much the "non speak" gobbledygook he used to play for Congress.  He talked about commercial real estate being dead for years and now rising on very low volume which is a real potential danger. He also said stocks are valued "average" historically and that much current and future economic demand has been eliminated.  Importantly, he did add that much future demand has been pulled forward and thus now eliminated.  This is an important admission in my opinion, he was saying that easy money works for today rather than tomorrow.     

He replied to Marc Faber by saying again "bubbles are very hard to spot" and that "no one" has been able to forecast the timing of a bubble bursting except by accident.  When I heard this I just started laughing out loud!  I must be "no one" because in late 2006 I left a very high paying job, sold my real estate, shipped my gold outside of the country and packed my family up to leave the country.  Did I do this on a whim?  No, I saw what was coming, I wrote about what was coming (it is still all archived as proof) throughout 2007 and 2008 and was surprised it took as long as it did.  I must admit that what I did not see coming was the Treasury and Fed's response by bankrupting themselves to prolong the game.  This is a story for another day but hearing "no one" saw it coming is laughable as I can name more who saw it coming than I have fingers and toes to count them on ...it's just that they were not on CNBC or visible via other mainstream media pabulum for the public to see.

As for the very last question, it was supposed to have been regarding his testimony to Congress in 1998 where Mr. Greenspan said, "Central banks stand ready to lease gold in increasing quantities should the price rise."  Gary Alexander substituted "buy" for the word "lease" which obviously changes the meaning and allowed Greenspan to truthfully say "No, I don't recall that."  I know that many believe Mr. Alexander let Greenspan off the hook and did not want to embarrass "the Maestro," I disagree.  I watched as Alexander furiously tried working his IPad, he had been e-mailed the quote 4 days earlier by Chris Powell and others and then again "re" e-mailed between sessions so the question could be asked.  This is where "caveman techniques" would have worked better using a pen and piece of paper, he could have simply stuffed it in his shirt pocket ...ready for use.  He (we) dropped the ball.  I saw it with my own eyes and believe it was an honest error, one that may never be corrected and could have had very significant historical ramifications but it is now water over the dam.  Alexander held two good interviews where he did not serve up softball questions and did actually get some truthful (and surprising) answers.  The problem as I see it is this question could have opened many cans of worms for the cartel as it is at the center of the suppression scheme and thus one of the core supports to a fraudulent fiat financial system.  As I said, I believe it was an honest mistake but a mistake of epic proportions in the scheme of things.

Before finishing I would like to ramble just a bit.  Had I been allowed to ask questions, I would have been much more specific with the questions he was asked.  I would have asked him (since it was born under his watch) which markets and "how" the PPT manages markets?  I would have asked him if there is ANY mathematical way out of where we are now.  If there is, what is it?  If there is not (there is not) does it bother him that he was at the helm while this ship headed toward the iceberg?  I would ask him "since you obviously understood and still understand gold versus fiat money, what in the world enticed you to captain a ship you knew would mathematically hit an iceberg?  Have you no conscience sir?  Enough said.

Median Nightmare

October 29, 2014

In the run-up to this afternoon's supposed "end of QE, "mainstream madness" has reached a fever pitch - as has TPTB's "manipulation, jawboning, and prayer." Humanity's dark side is fully visible in articles like "Yahoo! Finance's illustration of QE "success"; a panel of sub-humans attacking Peter Schiff for telling the truth to the delight of CNBC's bubble-headed, Stepford Wife host; and of course, flat out contradictions, as the dumbed down media rapidly loses touch with reality. Meanwhile in Europe, the ECBs Chief Economist claims to see no signs of deflation or recession, despite having taken interest rates to negative territory and initiated a new round of QE.

And taking the cake, Switzerland's Finance Minister warned that the proposed gold initiative would be disastrous for a nation that, as it turns out, became the world's premier financial destination on the back of a gold-linked currency. Claiming a gold-backed Franc would damage the "credibility of SNB monetary policy," she described gold as "among the most volatile, and risky investments" on its book. Fortunately, Swiss bankers won't make this decision - as the people will do it for them, via a potentially historic referendum on November 30^th. "Shockingly," initial polls favor a "yes" vote; and as you'll see in this must read piece by Grant Williams, the "yes" movement will indeed be a force to be reckoned with.

All along we have written of how the gold price at the time of the vote will be a key factor in its outcome, which is why the Cartel has so viciously suppressed prices this Fall. That and countless other reasons, like today's FOMC meeting, next week's mid-term elections, and the aforementioned commencement of ECB QE. However, irrespective of how successful - or unsuccessful - they are between now and November 30^th, we expect "yes" support to not only be strong, but exceedingly so. The Swiss fiercely support their direct democracy process; and after a decade of Central banking madness, they have a unique, historic opportunity to regain the top tier of global financial credibility. Given the horrific disaster the Swiss Franc's peg to the Euro has been, I wouldn't be surprised one bit to see the initiative pass. And if it does, you will be kicking yourself for having neglected to buy precious metals at such historically undervalued prices - just as Swiss National Bankers already do, for having sold near the markets lows at $300-$500/ounce.

In the two weeks following the "liquidity vacuum" that caused all-out panic amongst Fed governors, market manipulation has been historic - with each passing day causing the "reality gap" to widen. As you can see, we have witnessed nearly identical trading patterns for stocks and precious metals each day this week, utilizing the same algorithms as usual. This morning is no different, as the Fed prepares to "end QE," but do so with all manner of dovish caveats. Trust us, if the PPT and Cartel hadn't been able to "stabilize" markets the past two weeks, the Fed's message would be far more urgent. Which ultimately it will be, when TPTB inevitably lose control. Today, it's just commodities and currencies thwarting their "recovery" propaganda; but shortly, stocks, bonds and precious metals will join the "exposure party."  

Yes, the average family (of four) earned just $51,939 of pre-tax income in 2014, explaining why half of all Americans receive entitlement payments; which, by the way, commenced their parabolic growth nearly simultaneous with the 1971 gold standard abandonment. Not to mention, why student loans have rocketed well above $1 trillion, as desperate families "recruit" children into this inescapable debt prison to pay bills. Looking at this horrific chart of how 45% of all 25-year olds have student debt balances - averaging $20,000 - it's not difficult to see why home ownership is plummeting. Or, for that matter, why consumer spending is in freefall with desperate retailers already commencing holiday spending promotions. And heck, I haven't even mentioned Obamacare - which "conveniently" delayed publication of its 2015 prices until a week after the elections.

To demonstrate just how devastating the effect of flat real income, we have put together this "median nightmare" chart. Using estimates of key spending categories in the "need versus want" universe, excluding all discretionary spending, we estimate an annual "cash flow gap" for the average American family above $18,000, which can only be funded by draining record low savings, drawing record high entitlements or increasing record debt levels. Ominously, even if the median income level was after-tax, the average family would be living hand to mouth.

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