One of the big myths about Greenspan is that he is against inflation.
Greenspan is the Grand Champion ASSET INFLATIONIST of all time.
The problem is that commodity inflation and asset inflation are
almost twins. You can't have one without the other, at least, not
for long.
Fortunately, for Mr G wage inflation became extinct with free trade
and globalization. But for free trade Greenspan would never have
been able to pull off this very long period of asset inflation
without "real" inflation showing up in the economy.
But alas, all good things come to an end.
Just as Johnson's guns and butter in Vietnam eventually inspired the
oil price inflation of the 70's, with it's eventual currency
devaluation in 1971;
So too, the current bout of asset inflation is trickling down into
the real economy via it's favorite route, COMMODITY PRICES.
IT SEEMS THAT, AS MS STEIN MIGHT SAY: INFLATION IS INFLATION IS
INFLATION!
The 70's invented a particularly bad kind of inflation called
STAGFLATION.
THIS COMES ABOUT WHEN MONEY IS PRINTED DESPITE GULT IN GOODS AND
PRODUCTIVE CAPACITY.
IF THE NEWLY PRINTED MONEY IS NOT "INVESTIBLE" IN PLANT AND EQUIPMENT;
ULTIMATELY IT WILL DRIVE UP THE PRICE OF ASSETS, AND THEN GOODS,
USUALLY THROUGH THE "BACK DOOR" OF COMMODITY INFLATION.
This is where we are today.
The problem is can the US economy survive without asset inflation?
After all, the entire foundation of 401k retirments is based on the
constant increase in asset prices.
When INFLATION is confined to the stock and real estate markets, things work out fine.
But if the inflation spreads to the gas pump and the supermarket?
Problems arise.
My hunch is that Mr G knows all of this, and he will not be able to
stop the commodity inflation without stopping the asset inflation.
THE MONEY SPIGOT WILL BE KEPT OPEN WIDE SIMPLY BECAUSE TO STOP THE
ASSET INFLATION NOW WOULD BE TO INVITE DISASTER ON A HUGE SCALE.
IS THIS SHOCKING?
Actually no.
THE 20TH CENTRUY IS FILLED WITH EXAMPLES OF CENTRAL BANKS FINDING
HYPER-INFLATION TO BE "LESS EVIL," THAN A GENERALIZED DEFLATION IN A
HIGHLY INDEBTED ECONOMY.
Or, put another way; Greenspan would rather deal with a future hyper-
inflation, than with a disasterous collapse of the asset markets
now.
Frankly, I would be preparing for hyper-inflation and devaluation
before any other scenario. Given a choice Greenspan has always opted
for inflation over deflation.
