How Alan Greenspan Helped Bring Down the US Economy-- And What Boehner And His Cronies Have In Store For Us If They Win In November

Shaun Connell is a DWT reader who describes himself as a "recovering laissez faire follower." He's also a serious investor who's been researching the causes of the Bush Recesssion and I asked him to guest post on some of his findings for us today. You can find more of his work at the websites he manages dealing with debt and other financial issues. Shaun:

Alan Greenspan, the former Federal Reserve Chairman, appears incapable of issuing a mea culpa despite mounting evidence that he played a significant role in causing our recession. “The Maestro” continues to defend against his detractors by affirming that the entire dark episode in the financial life of the United States and the world happened as a maverick event that even a financially sagacious man could not predict. He's rivaled only by Bush and GOP leadership when it comes to economic denial regarding the bubble-nature of outrageously low interest rates.

In an interview with Bloomberg Television in September, 2010, Greenspan asserted his belief that the crisis was a singular event without precedence in the history of the world. He claimed that there was no instance of short-term credit withdrawal across the planet that quite matched what happened after the fall of Lehman. Apparently oblivious to the financial crisis that occurs every five years like clockwork since the middle of the 1970s, he insisted that the entire catastrophe was a rare, unprecedented event that caught everyone by surprise.

Defending his track record regarding his role in instigating the Fed’s monetary policy prior to the financial disaster, Greenspan insisted on the sagacity of his decision making, suggesting that the low interest rates that he initiated during his reign as the Fed Czar was only a part of a massive financial credit splurge. It did not seem to occur to him that it was highly unlikely that the United States Federal Reserve played a minor and inconsequential effect on the monetary trend that affected the entire world. In fact, he went on to disingenuously claim that the root of the problems in the monetary policy were related to the Cold War because the effects of that era reduced long term interest rates. In contrast to the economic effects of the end of the Cold War, he argued, his policies only had an in insignificant aspect effect.

In March 2010, Greenspan issued a defensive 48 page document to the Brookings Institute that showed he was far more aware of the economic crisis than he let on during the Bloomberg Television interview.

According to this paper, the Feds didn’t pop the alarming spread of the credit bubble in 2007 because the dot-com fiasco, the 1990-1991 recession, and the 1987 recession did not significantly affect the global GDP, thus leading sophisticated investors, as well as the Federal Reserve, to believe that future recessions would all be equally forgettable.

And by "forgettable" I mean in the short-term by the American public. Bush and Greenspan worked together to create as much of a bubble as they possibly could as a reactionary response to the dot-com bubble collapse, 9/11 and every other economic problem the money-printing duo happened to run accross.

Bush and Greenspan worked together to duct-tape the US economy so it looked healthy to the public. The weapons of choice were war expenditures and easy credit. Plus, don't forget George Bush's not-so-brilliant "ownership society" ideology, where consumers would move from renting to asking banks for loans in order to buy houses. "Ownership" of course, was just a clever way of saying "go into debt to create banking profits to make the bubble last a little longer."

In other words, a financial crisis, like a passing cold, did not deserve much serious consideration because taking economics seriously just might cost an election-- and after all, that's all that really matters to a lot of politicians. Moreover, the reason the Fed did not burst the bubble, although it had the power to do so at the time, was because it did not want to dampen economic growth. This is in direct contradiction to what he said in the Bloomberg Television interview when he talked about how the crisis could not be anticipated.

What we have here is a massive, dangerous contradiction, unfortunately only one of many instances of the misdirection offered by the man who played a huge role in causing the recession. In March, he knew about the foreseeable and preventable nature of economic crisis, but somehow, in September, the economic crisis appeared to come out of nowhere, a strange anomaly in an otherwise well-regulated and forecastable economic system.