 Greenspan's Choice:
Scylla or Charybdis?
Nelson Hultberg
hultberg@afr.org
April 27, 2004
In Homer's famous epic, the Odyssey, its hero Ulysses must endure
a long series of dangerous adventures in his journey home from
the Trojan Wars. He and his men come under fire at every turn,
as some new, death-threatening predicament is thrust upon them
in their efforts to find their way back to their wives and families.
The one-eyed monster Cyclops imprisons them in his cave, while
the beautiful seductress Circe turns Ulysses' men into swine.
The Sirens force Ulysses to tie himself to the ship's mast so
as not to be lured to his death by their irresistible songs.
While navigating the narrow Strait of Messina, he and his men
confront the twin perils of Scylla and Charybdis. Scylla is a
monster with multiple dogs' heads that lives in a cave on the
shore; and whenever sailors come too close, she pulls them up
and devours them. In order to avoid her, however, ships have
to pass closely by another monster on the opposite side of the
strait, Charybdis, who is equally hideous and sucks unfortunate
travelers to their deaths in an all-consuming whirlpool.
From the days of Homer on, this plight in life where one has
to choose between two opposite evils became known to the Greeks
as being between Scylla and Charybdis. In our modern day, this
conflict has come to be known as "being between the devil
and the deep blue sea," or "being between a rock and
a hard spot." The Greeks had a more eloquent style in describing
it, but the essence of the dilemma remains the same. There are
certain times in life when people and societies have worked themselves
into a choice where both alternatives spell calamity, and the
margin of escape is extremely thin or non-existent. They often
have no way out, with their only choice being to decide which
of the two calamities is less destructive.
We in America are now in one of those situations, and there is
no way out other than to choose one of the calamities as our
fate. The two calamities that confront us are massive DEFLATION,
or runaway INFLATION. We have worked ourselves into this ghastly
predicament because of a long series of misguided (and perhaps
at times purposely evil) choices that we and our leaders have
made throughout the 20th century. The year 1910 was when this
morality play began.
When America's prominent bankers and politicians met on Jekyll
Island off the coast of Georgia in November of that year to hatch
their plan to monopolize the nation's banking system, they set
in motion forces that have now carried us to our modern day Strait
of Messina -- between Scylla and Charybdis. The horrible aspect
about all this is that we have no brave Ulysses to lead us through
the treacherous waters. We have only Alan Greenspan, who has
demonstrated throughout his career that he knows how to dissemble,
obfuscate, and lust after power, but not how to lead and navigate
his country toward the smooth waters of economic truth.
As the esteemed Richard Russell has written, "Alan Greenspan...
of all people knows all about the Federal Reserve and money and
gold. For this reason, I consider him one of the great 'sell-outs'
of today. Not only has Greenspan headed the Fed (he should have
denounced it, not headed it) but he turned out to be the greatest
inflationist in American history.
"Ultimately, as this bear market moves through its second
and then final phase, it will be seen how Greenspan, in allowing
debt to build to obscene proportions, caused untold harm and
suffering to the people of the U.S. Some will say that Greenspan
did what he thought best for the nation. In his guts, I'm convinced
that Greenspan knew better, but that he gave into his giant ego."
[Dow Theory Letters, April 19, 2004]
This is certainly true. Sir Alan got caught up in the trappings
of power. He enjoyed having Wall Street treat him like a god.
He loved having the bigwigs of Congress grovel at his feet. He
relished riding around in the black limousines. He knew early
on that gold, not paper, was money. He knew that Keynesianism
was hokum. In his youth, he had been a follower of Ludwig von
Mises and a colleague of the famous laissez-faire advocate, Ayn
Rand. He knew the history of statist regimes, and why they hated
gold so much. After all he penned a profound
defense of gold for Rand's Capitalism: The Unknown Ideal
in 1966. Yet somehow he forgot all the truths of his younger
days and bought into the self-delusions spawned from his megalomania.
It has been reported that Ayn Rand once remarked at a party in
the late fifties about Greenspan, "Oh, Alan is so brilliant,
but he's such a social climber." Seems she pegged him rather
well, for Mr. Greenspan certainly became quite skilled in the
climbing game that makes up Wall Street and Washington.
One can imagine Sir Alan at a martini lunch with Bill Clinton
and Bob Rubin in 1995 listening to the two of them outline their
plan to create a "pseudo-strong dollar." By leasing
gold to Rubin's buddies on Wall Street who would then sell it
to the market, the central banks could continue listing it on
their books as an asset. The public could be kept in the dark,
and consequently the Forex markets would not get alarmed. The
dollar could then be hyperinflated, and Clinton could then be
reelected in 1996 despite the Republicans rising power with their
Contract for America.
Greenspan surely had to suppress the moral warning lights in
his brain to buy into such deception. But buy into it he did,
because he desperately wanted that third term as head of the
Federal Reserve, and the path to it was determined by courting
the favor of Clinton and Rubin.
Such are the temptations that accompany the power game in the
political swamps of Washington. They are the same today as they
were in Ulysses' day. The difference is that Ulysses rejected
the temptations that life's crucible threw at him and fought
to return to his beloved Penelope in Ithaca. Greenspan has succumbed
to the temptations in order to ride around in black limousines
for another four years. If Greenspan had possessed the integrity
of Ulysses, he would have resigned in protest in 1996 and written
a grand bestseller about Clinton's and Rubin's fraud, about the
fallacies of the Fed, about the dire need for a renunciation
of Keynesianism if the concept of a free society is to survive.
But he didn't, and one must surmise that he didn't because he
enjoyed the trappings of power more than he enjoyed justice and
right principle.
As a result, we had the hallucinatory bubble of the late nineties,
when we should have gone through a corrective recession in '96
and '97 to bring back some sanity to the markets. This is why
politics and banking cannot be joined as we have done with the
Federal Reserve cartel. Politicians like Bush and Clinton, along
with bureaucrats like Greenspan and Rubin, will always hatch
dangerous schemes to enhance their power and wealth at the expense
of the people and their rights, at the expense of the country
and its stability.
The Great Blanking Out
The paramount question that
now confronts us and the rest of the world is which monster do
we get consumed by, Scylla or Charybdis? Which devastating calamity
is to come our way, hyperinflation or collapsing deflation?
Most of our pundit class, of course, denies that the choice is
so stark. Wall Street lackeys like Kudlow and Cramer and the
shills at the BLS continue to pour out their incredulous propaganda
every week about how our economy has turned the corner, how innovative
productivity will carry us through, how the consumers of America
will stay steadfast, how increased capital expenditures are just
over the horizon, etc. But then they have no choice but to blank
out on reality if they wish to continue in their prominent positions
on the power and celebrity ladders. The Keynesian paradigm they
learned in their college days must be adhered to at all costs
in order for their universe to appear sane. They must tell themselves
that these Cassandras in the hard money community are wackos.
A few rough spots may lie ahead; but the world's economies are
not in any kind of meltdown danger. The modern era has solved
the problem of the inflation-depression cycle through institution
of the Federal Reserve and it's "multiplier effect."
Monetary policy will smooth out the rough spots and ignite the
economy again.
"Alas, regardless of their doom, the little victims play;
/ No sense have they of ills to come, / Nor care beyond today.
/ Thought would destroy their Paradise. / No more: where ignorance
is bliss, / 'Tis folly to be wise."
So wrote the 18th century poet, Thomas Gray. To those of us who
have not forgotten the eternal verities, he has summed up perfectly
today's pundit herd of Washington and Wall Street. Our intellectual
and political leaders have constructed a massive blank-out job
in face of a reality of their own making that is just too horrendous
to contemplate. So they purge reason from their minds and revel
in the bliss of ignorance.
The question then for all rational men is which monster do we
get consumed by, Scylla or Charybdis? Hyperinflation or collapsing
deflation? Upon this question hangs our future. Our Strait of
Messina has narrowed too much, and we no longer can escape unscathed.
We must now succumb to one of these calamities. Does the Fed
realize this? Perhaps, but certainly the American people do not.
Do Bush and his advisors realize this? Of course not, they are
part of the establishment herd. They believe that the Fed's monopoly
money is actually wealth. They believe that dross can be turned
into gold. They believe the great Keynesian hoax that came to
visit its destruction upon the 20th century.
A very intriguing question should be answered in the next few
months: Does Greenspan realize the frightful nature of his choice,
and how will he react to the dilemma? His term is up in June
of this year. Will he opt for reappointment? Is Bush even willing
to reappoint him? Or does Bush harbor hatred of Greenspan for
his rate hikes in 1992 when his father was trying to get reelected
against Clinton? I believe that a certain part of Bush's obsession
with Iraq has been motivated by the desire to avenge his father
against Saddam Hussein. If so, then perhaps Bush Jr. also dislikes
Greenspan enough to affect his policy decisions on the matter.
After all, Bernanke, an "open spigot" Keynesian, is
waiting in the wings. Why not appoint him and bring on the helicopter
money. Like all good Keynesians, Bernanke believes paper money
is actually wealth and that no choice will ever be necessary
between Scylla and Charybdis?
Such are the dilemmas that humans get themselves into because
they wish to get more out of life than they are willing to put
in. Such are the dilemmas of those who hang around on the stage
of power long after they should have exited. Greenspan, no doubt,
wishes he had gotten out with Rubin when he could have exited
with his reputation intact. Now the role of a "modern day
John Law" awaits him in the history books.
Only the blind cannot see Scylla and Charybdis looming up ahead
-- waiting to consume us. As Richard Russell so sagely puts it,
"What the Fed and the US government have done is to build
the greatest edifice of debt ever seen by one country in history.
And this debt continues to build. For the US government, the
debt build-up is continuing at the rate of over $13 billion a
WEEK. The current rising trend in interest rates will bear down
on this ocean of debt. This pits the forces of deflation directly
against the forces of inflation.
"This impending battle of inflation vs. deflation is going
to be one of the most critical economic confrontations seen in
decades. Frankly, I don't know how it's going to turn out --
and neither does anyone else. In fact, I'd say 99 percent of
the US population is unaware that it's even happening."
[Dow Theory Letters, April 13, 2004]
Obviously to those of us who are aware of the impending battle,
knowing which of these two scenarios awaits us would be most
advantageous. Will America explode into hyperinflation, or will
she collapse into all-consuming deflation? If that could be known,
then one could direct his investments accordingly and reap considerable
profit in the markets. If only he knew for sure.
In the long run, collapse of some kind is coming. That is the
unavoidable nature of a boom-bust Keynesian economy. But which
will come first, Scylla or Charybdis? The gamblers will try to
predict and invest accordingly. The more conservative among us
will opt for gold and cash as Russell urges.
The Two Greenspans
This writer is of the opinion
that there are two different Greenspan personas presently competing
inside his soul to win the acceptance of his mind. One of these
personas would like to scamper out of Washington in June and
leave the coming collapse to his successor, but he is torn over
doing so. While he certainly worries over how best to help the
American economy, my guess is that he anguishes far more over
how it will look in the history books for him to abandon the
sinking ship that he loaded with obscene debt. He is primarily
concerned with what all political power lusters are concerned
with -- how the future generations will view him.
I believe it is also quite possible that another persona lurks
inside of Greenspan. This is the side of him that wants to believe
he can avoid having to make the choice between Scylla and Charybdis.
This is the side of him that thinks he can avoid deflation without
having to print up helicopter money. This side of him whispers
soothingly that he can actually steer the economic ship through
to recovery with low interest rates and a moderate monetization
of bonds and fiscal deficits. In this way, he can avoid being
consumed by Scylla, the hyperinflation monster. And Charybdis,
with its maelstrom of deflation, can also be avoided. He, Sir
Alan, will become a sort of modern day Ulysses. He will go down
in the history books as a great legendary hero. This side of
him says that the Cassandras are wrong, that he does not have
to choose between the two devastations. Hyperinflation is not
the only way to avoid depression. If the power of the Fed is
handled properly by a leader of great wisdom and skill, then
the economic ship can navigate the dreadful Strait of Messina
and come through unscathed.
Is this possible? Can one man at the helm of the Fed guide the
American ship through to recovery and a healthy robust economy
again without incurring a devastating meltdown of some nature?
Anything is possible in the minds of the power-crazed. The socialists
believed that billions of daily prices and productive decisions
encompassing centuries could be manipulated by a group of planners
behind their mahogany desks in the Politburo. So perhaps Greenspan
believes that he too can manipulate the massive complexities
of a market economy in its present peril.
I certainly don't believe such a thing is possible. I believe
that we have worked ourselves into such a stupendous level of
debt that there is now only one way to avoid the tragic whirlpool
of deflation, and that is to start flying the helicopters over
the hinterland with large crates of hundred dollar bills to disperse
to the people. The only way out is to hyperinflate our way out,
which, of course, is not really a way out. It is merely resigning
oneself to picking Scylla instead of Charybdis. The Strait of
Messina is now too narrow. The Kondratieff winter is upon us.
This is the horrible fate of countries that allow their governments
to become centralized so as to manipulate the workings of the
marketplace. Their prosperity, their freedom, and their stability
become hostage to the egos of the leaders to whom they have given
such power. And men in pursuit of power have mega-egos that have
to be appeased. So America's fate, and with it the rest of the
world's fate, hangs in the balance of a few highly flawed men
vying for seats in black limousines and places in history books.
What the Greeks Can Teach Us
Homer's Odyssey presents us
with a very salient lesson here. It was the Greek's belief that
only men of great moral fiber could navigate the perilous seas
of life without succumbing to the myriad temptations of power,
wealth and sex, and thus plunging themselves and their country
into repeated devastations. And even such high-minded men would
succumb occasionally. Men, by nature, were possessed of far too
many flaws in their makeup to be able to sail smoothly through
life. But the Greeks also believed that when the Straits of Messina
and their monstrous dangers do descend upon us, it is only the
men like Ulysses who have a chance to make it through.
The tale of this Greek adventurer is an eternal classic and remains
one of the great morality tales of humankind. Homer was the Greeks'
Moses -- the first of their wise philosophers -- who spun a mesmerizing
story of power lust, and greed, and glory, of beauty sought,
riches found, and justice won. Homer taught his contemporaries
about the damnable temptations that all men and women must confront
as they journey through this world. He taught of the values that
must be honored in order for life to be true. He taught of the
heroic virtues that men must embrace in order for their souls
to be sound. His tale is quite relevant down to our day, for
we have our own morality tale unfolding right before us. While
different in cultural specifics, it contains the same temptations
of the spirit and dangers to the social fabric that the leaders
of Homer's day had to confront.
How is all this to unfold? The answer lies in the fact that we
crossed the Rubicon in 1971 when Richard Nixon closed the gold
window. With that default, he sealed the fate of his country
and doomed us today to a Kondratieff winter that will be the
most devastating in history.
Which will appear first, inflation or deflation? My guess is
that they will descend upon our debt-bloated ship in tandem.
Scylla and Charybdis will be united in a long, grueling, ravaging,
helter-skelter, debt-purging meltdown that will possibly last
up to twenty years. We are four years into the meltdown at present.
The end of the world is not upon us, but the end of "our
world as we know it" is. The only thing in doubt is what
kind of society will we construct as we climb out of the maelstrom?
Will the advocates of freedom prevail, or will the purveyors
of statism overwhelm? Will Ulysses and his band make it back
to Ithaca and bring a restoration of the free-market vision of
Jefferson and Smith? Or will the New Orwellians usher in their
hideous world government in answer to the economic nightmare
that they themselves brought on with their greed and hubris?
Stay tuned. The jury is still out, and we the people are part
of that jury.
 Nelson
Hultberg
Americans for a Free Republic
April 26, 2004
www.afr.org
hultberg@afr.org
 Nelson Hultberg is a freelance writer
in Dallas, Texas and the Executive Director of Americans for
a Free Republic www.afr.org. His articles have appeared in such
publications as The Dallas Morning News, Insight, The Freeman,
Liberty, and The Social Critic, as well as on numerous Internet
sites.
He is the author of Why We Must Abolish The Income Tax And The
IRS (amazon.com), and he has a forthcoming
book, Breaking the Demopublican Monopoly, to be released this
summer.
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