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A Private Chat with Alan Greenspan

Jan 20, 2017


BALTIMORE - The Financial Times is wrong about most everything.

The Davos consensus, too, errs regularly. So does former US treasury secretary Larry Summers.

And when former Democratic senator William Proxmire revealed Alan Greenspan's economic forecasting record in the latter's confirmation hearings, it was a long list uninterrupted by success.

And now, all are agreed: 'Trumpismo' won't deliver the goods.

Sugar Rush

These usually unreliable sources may be on to something.

But Greenspan's views - expressed in a private meeting with us in our office here in Baltimore on Tuesday - are closest to our own: Donald Trump won't even get the truck started.

The Financial Times quotes industry leaders in Davos calling the immediate effects of Trumpismo a 'sugar rush'.

In the same paper, Summers predicts a 'bitter comedown from Trump's sugar high' and that 'disappointment and disapproval will set in within a year'.

You know our thoughts already: It's not Trump's fault. This is an economy that has been corrupted by the fake dollar and the Fed's EZ money policies.

Like a hothouse flower, it can't survive outside the strange environment of artificially low interest rates, market backstops, and bailouts.

Take these away - which would happen in a real boom - and the whole thing dies, like a poinsettia suddenly taken outside into the winter snow.

At our meeting, Greenspan seemed eager to talk about it. 'Aren't you going to ask me about the last ten weeks?' he prompted.

Amid all the mumbly-fumbly from the former Fed chief (he hasn't lost his famous talent for obfuscation) was this clear and unequivocal insight: 'It won't happen.'

Greenspan was referring to investors' fondest hope and their most impossible dream: that the president-elect will reverse three decades of declining GDP growth, falling productivity, and drooping middle-class wages by sheer willpower.

Trump, if you believe the press, is supposed to cut taxes and boost spending, thus touching off a Reagan Redux...the morning after the 'Morning in America'.

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Food Fight

'I spent a lot of years in DC,' Greenspan explained to us.

At 90, he still lives there...still consults and socialises with the swamp critters...and still keeps his ears open.

Once the Trump team confronts the reality of the federal budget, he says - with $1 trillion-per-year deficits as far as the eye can see - and it gets into the bitter infighting in Congress, it will realise that it may never pass the legislation it promises. Not quickly. Not easily.

'It will be another Congressional food fight,' President Reagan's budget director David Stockman replied.

David, who now writes the Contra Corner newsletter, is an old friend of Greenspan's from back in the early days of the Reagan administration.

The memory of these 'Congressional food fights' was so vivid in David's mind, it was as though he still had gravy stains on his lapels and Jell-O in his hair.

'There is no way the Tea Party caucus is going to rubber-stamp a series of debt-ceiling increases,' he argued. (David was the one who briefed Reagan on budget issues before and after his victory over Jimmy Carter.)

'It just won't happen.'

'This is a non-sustainable outlook. Trump may have some magic formula he hasn't divulged to anybody. But I don't see where we go from here,' added Greenspan gravely.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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