Posted Jul 26, 2014 by Martin Armstrong
- Greenspan says bubbles can’t be stopped without ‘crunch’
- Stockman: C’mon Alan! Bubbles Are Caused By Central Bankers, Not “Human Nature
David Stockman is clearly still a politician who blames central bankers to the point he is just way out of touch. Stockman fails to even understand the global capital flows and harps on 1987 when in fact Stockman did nothing to prevent the formation of the G5 (now G20) that is run by the politicians – not the central bankers. Stockman seems hopelessly lost in assuming central banks are even in control of anything. The national debt stands at $17 trillion of which 70% is accumulative interest expenditures NOT because of central banks, but because of politicians as he was!!!!!! They assume Congress can spend whatever it desires and it is the job of the central bankers to mitigate the failure of Congress.
To the contrary, Alan Greenspan has apologized for trusting big banks too much. That is an important statement that is now being reflected in the bankers being hunted for manipulating everything. Greenspan is correct and Stockman is way off base. Bubbles are NOT created solely by interest rates nor by changes in money supply. The driving force is always international capital flows and if Stockman ever had a real job dealing with capital on a global basis he would see that any country can be overwhelmed by external forces.
Stockman merely repeats the errors of those that have dominated this debate for decades. They argued that lowering the interest rates in 1927 created the bubble in 1929. That is just seriously wrong as if the events around the world mean absolutely nothing. The Fed did not create gold out of thin-air. The gold fled Europe and poured into the USA regardless of the interest rates. The rate cut in 1927 was taken overseas as a confirmation that there was a real debt crisis that eventually exploded in 1931.
Stockman blames central bankers preventing any real analysis of the global economy because everything they see is only within the domestic context. If the argument of Stockman were correct, then as soon as the Fed began to raise rates after 1927, the market should have declined. It rallied instead. Then the Fed cut rates yet the market continued to fall.
We will see rates rise and the stock market WILL RISE and everyone will be confused because of this myopic domestic viewpoint that keeps repeating the same mantra for decades without any investigation or understanding.
Sorry Stockman – Greenspan is correct. This is the business cycle and you cannot manipulate it like Karl Marx. It is the people and not the central bankers because it ALWAYS requires CONFIDENCE. Just look at Japan, Rates declined for 23 years but nobody wanted to borrow because they saw ZERO opportunity of making a profit. Deflation engulfed Japan and the stock market was dead. Unless people BELIEVE they will make a profit, they will never borrow regardless of the level of interest rates.
When you do real analysis you quickly discover that the stock market has NEVER peaked with the same level of interest rates in history. It has always been the difference between expectation (CONFIDENCE) and the actual empirical level of interest. So in other words, if you THINK that you can make 50% in just six months, you will pay 20% interest. But if you cannot see even 1% possible profit, you will not pay 1% interest. There has to be a margin of expected profitability.