Alan Greenspan: America's Economist-Astrologer Laureate

Twenty-five centuries ago, Euripides, the Greek dramatist, claimed that the best of seers is he who guesses well.

In today’s America , in order to satisfy both wings of our solitary American Consumer Party, the crystal ball predictions must be politically and patriotically correct as well. And no one does it better than our Seer-in-residence, Mr. Economics Emeritus himself, the one and only Alan Greenspan.

Mild-mannered, with just the right political and verbal contortions, Greenspan continues to awe the uninitiated as well as the “experts” in economics. With an elusive, non-committal demeanor, he plays the three sides of the fence; the two proverbial sides, plus the other occult side where he seems to hinge his bets. Unquestionably, he does justice to those who claim that economics is but an occult art… and he, like Nostradamus before him, does it very well.

Apparently, Greenspan’s mild comment of “irrational exuberance,” describing the then NASDEQ vertiginous ascent, was enough for him to save face, although a few months later turned into a not-so-mild $8 trillion loss in the paper value of stocks. No prophesies, no warnings… just safely following Paul Revere on a donkey telling the Colonists that “the Regulars ‘could be’ considering coming.”

Well, that bubble burst… although the soapy affair took life again in 2003 and picked up a few “irrational” trillions. Now, Mr. Greenspan, sir… aren’t other bubbles around that you could warn us against… or is it too late, or politically imprudent to do that?

I mean, look that colossal real estate bubble now ready to crash-land!

Even amateur-economists without Ph.D.’s can see the classic signs of a bubble in the over stimulated eagerness to buy real estate. Low interest rates have certainly turned the housing market upside down, qualifying people for bigger loans… which have brought forth price bidding (higher prices/inflation) and the purchase of larger houses, with corresponding higher expenses and property taxes.

In less than two years, we have seen the discount rate lowered by the Federal Reserve from 6.50% to 1.25% following the collapse of the puffy economy preceding 2000. It did induce a stronger economic recovery, short term, but at a price yet to be determined, most particularly in the housing market.

Housing prices have outpaced the rate of inflation for non-housing components by about 50% in less than a decade. And those prices were rising year after year faster than income gains. That does not border on the absurd… it overlaps it! To boot, those housing prices are now well ahead of rents which suggests that people are buying houses not as shelter but for speculation.

The choreography in the real estate market today is much the same as that in Wall Street four years ago. Real estate brokers today dance to the same music that was played by stock brokers, investment bankers and Internet analysts of tech-stock bubble fame (1999). Especially alarming are the “aggressive” home appraisers who make it possible for buyers to get loans on homes selling at sky-high prices. (Sadly, otherwise honest, professional appraisers must follow course or be out of business.)

This real estate bubble is just a bubble within a bubble. The “mother bubble" is obviously one that the Fed has been creating to please our politicians, and our irresponsible short-term mentality. There are tens of trillions in debt created by the US federal money supply… also personal, corporate, municipal, state and federal debt. That is the real scary bubble that will eventually burst… because of issues we now seem to be unwilling to face, such as the international trade balance of payments, value of the dollar, and future growth of our economy vis-à-vis other up-and-coming nations in the world, such as China, Brazil and a dozen others.

This is not Tulip mania of 17th century Holland . Ours is a much different world, even if we continue to have that same herd mentality. We need truth-economics, Mr. Greenspan, and not more of your political horoscope readings.