The Butch
Cassidy of Banking
Bill Bonner
The
Daily Reckoning
January 30, 2006
The Daily Reckoning PRESENTS: This coming Tuesday, January 31 will
see Greenspan pass the torch to Ben Bernanke as the head of the
Federal Reserve. Let's take a quick look at the job Helicopter
Ben will be taking over...
"Alan Greenspan is the
greatest economist of our time... probably the best central banker
of all time."
Thus saith a French economist
this morning interviewed on a radio talk show this morning. Your
editor, also a guest on the show, was asked to respond. What
follows is not what he said (because when he is called upon to
speak in public he tends to hem and haw like a teenager asking
for a date.) But this is what we intended to say:
"Yes, we agree. Alan Greenspan
is probably the best central banker that ever lived... in the
sense that Butch Cassidy was a great bank robber or Mrs. Purdy
ran a great bordello. What is great about him is that he really
understood central banking and appreciated it; the way a swindler
admires a really good flimflam."
"What you have to remember,"
we began, gravely, "is that a central bank cannot work miracles.
It cannot turn water into wine. It cannot make the blind see,
nor heal the sick. When we speak of the central bank 'creating
prosperity,' for example, we are either exaggerating or outright
lying. The lilies at central bank toil not, neither do they spin.
They plant not. They harvest not. They manufacture not. They
invent not. 'Not' is what they do best... except when it comes
to the nation's stock of money. There they put their shoulders
to it.
"But what can they do? They are
typically thought to control the quality of money. This, of course,
is what they are supposed to do. And in Europe, more or less,
that is what Jean-Claude
Trichet does. But central banking in Europe is a slightly
different métier from central banking in the United States.
Bill Clinton jokingly wished he could create an Alan Greenspan
Inc. and sell it on the NYSE. So high had Greenspan's stock flown,
Clinton knew he'd get rich on options and warrants. Who would
suggest such a thing for Trichet? Who even knows his name or
would recognize him in a lap-dance bar? The man labors
in relative obscurity... if not absolute and perpetual darkness.
"How he must envy Alan
Greenspan! The American Fed chief's picture is on the cover of
every magazine... on the front page of every newspaper... and
on the evening news, too. Le Monde commented earlier in the week
that Greenspan was 'the prototype for the great leader of the
21st century.'
"Why such a big difference
between the European's central bank chief and his American counterpart?
We have an answer. It is because the euro-functionaire does the
job he's supposed to do. Europe is a mixture of many different
economies. It cannot easily agree on a common economic policy.
The most it can ask of its central banker is that he not destroy
the group's common money.
"Not so over in the imperial
homeland. There, Mr. Greenspan casts a much bigger shadow across
the world stage. He is not merely a bit player but the lead...
the protagonist... the one who outsmarts the villain and wins
the heart of the leading lady. And he is the one with the big
guns in his hand. America's Fed-head is charged not merely with
protecting the dollar, but also with assuring full employment,
hiking-up property prices, doling out low-cost credit, re-electing
all public officials; he must finance all wars, pills and hurricane
clean-ups, and a low-fat chicken in every pot. He has what is
known as a 'dual mandate' - he must control the nation's economy
and its money at the same time.
"But there is a place
where the whole folderol washes up every time. A central bank
can protect the value of the currency; Trichet is proving it.
But when it is asked to do more than that, the currency swiftly
goes down the drain. Let us explain: The only thing a central
bank can control directly is the nation's money. It can control
either the quantity of it, or the quality. The quality is controlled
by resisting the impulse to issue too much money, but resisting
the impulse to create too much money is exactly what nobody wants.
Politicians, consumers, merchants, investors and two-bit grifters
all want more money, not less. "Thus, even the most prudent
and responsible central bankers inevitably allow a bias to creep
into their management of the country's money. When crises threaten
they quickly cut rates and pump up the money supply. When crises
don't threaten any more, they drag their feet in tightening up.
We saw this happen with Alan Greenspan's Fed recently. The recession
of 2001 brought brisk treatment - rates were lowered like a leper's
body into a grave. But when the time came to put rates back up,
it was done gingerly... by tiny 'baby steps' over what seemed
like an eon.
"And that is why activist
central banking is nothing more than a fraud. If the object were
only to have stable money, the bankers would simply fix the price
of the currency to gold and no banker's bilious face would appear
on the cover of Time. They'd all be as anonymous as Trichet.
Alan Greenspan said so himself, before he arrived at the Fed.
And yes, once settled in the cushiest chair at the Fed, Alan
Greenspan made central banking work... but only for him.
"The job, as we have come
to know it, is better than 'Survivor' when it comes to creating
celebrities. The only thing it does better is creating money.
And the only thing you can be sure of is that the money it creates
will lose value and continue losing value until it has none left.
At that point, even lepers won't want to touch it."
-Bill Bonner
email: DR@dailyreckoning.com
website: The
Daily Reckoning
Bill Bonner
is the founder and editor of The Daily Reckoning.
Bill's book,
Mobs,
Messiahs and Markets: Surviving the Public Spectacle in Finance and
Politics, is a must-read.
He is also the
author, with Addison Wiggin, of The Wall Street Journal best seller
Financial
Reckoning Day:
Surviving the Soft Depression of the 21st Century (John Wiley
& Sons).
In Bonner and
Wiggin's follow-up book, Empire
of Debt:
The Rise of an Epic Financial Crisis, they wield their sardonic
brand of humor to expose the nation for what it really is - an
empire built on delusions.
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