How a Pro-Gold Standard Economist Turned Into an Easy Money Advocate
Inflation is in the economic air, and it’s not going away any time soon as some in the media would like you to believe.
Contrary to popular belief, inflation is not a random economic occurrence. It’s the product of public policy. Namely, loose monetary policies that consist of maintaining artificially low interest rates and expanding the monetary supply. This has been the standard operating procedure of the Federal Reserve for the past three decades.
Fed Chair Alan Greenspan (1987–2006) helped get the ball rolling on this end. Greenspan took control of the Fed during the stock market crash of 1987. Following that crash, he called for dramatically cutting interest rates to keep the economy from plunging into a deep depression. Ironically, Greenspan gained notoriety during the early part of his career for his anti-inflation views. At one point, he advocated for a return to the gold standard, as evidenced by his 1967 essay “Gold and Economic Freedom.”
Many critics of Greenspan feared that he would implement hard money monetary policies once he became Fed chair. However, those fears never came to pass. Once he assumed the role of Fed chief, Greenspan’s views on monetary policy started shifting.
During a speech in 1998, Greenspan expressed his belief that the American economy might not be as susceptible to inflation as he had originally expected. Once he got acclimated to his position at the Fed, Greenspan started implementing unprecedented interest rate cuts.
Following the collapse of the dot-com bubble in 2000, Greenspan called for lowering interest rates. In addition, Greenspan pushed for similar measures after the 9/11 attacks on the World Trade Center. In the aftermath of these devastating attacks, Greenspan presided over the immediate lowering of the Fed funds rate from 3.5% to 3%. Subsequently, Greenspan worked on slashing the rates to a dramatic low of 1.13%.
At first glance, Greenspan built his reputation for serving as Fed Chair during the “Great Moderation”, when inflation and macroeconomic growth was relatively stable. This period lasted from the middle of the 1980s up until 2007.
While this was a period of economic prosperity, it proved to be an illusion due to the aforementioned easy money policies Greenspan pursued as Fed chair. In many respects, Greenspan’s easy money policies sowed the seeds for the US’s economic crises throughout the 2000s — the 2000 dot-com bubble and the 2007–2008 financial crisis.
Many of Greenspan’s critics argued that his interest rate cuts inflated numerous assets and created economic distortions throughout the economy. Such interest rate manipulation sent misleading signals to entrepreneurs. In turn, a misallocation of a large portion of economic resources occurs. It’s the classic boom-and-bust cycle that we saw play out during the Global Financial Crisis of 2007–2008.
To this day, the Fed cabal has not really learned the lessons of the limits to playing god with monetary policy. That’s part of the reason why the US finds itself in an inflationary crisis in the present. Looking back, it’s quite ironic how an individual like Alan Greenspan, who held pro-gold standard beliefs and even associated with free-market luminaries such as Ayn Rand, would be assimilated into the central banking Borg.
Greenspan’s case shows how power corrupts even people who start out with sound economic and political principles. But that’s politics for you. It’s an unruly beast that can’t be tamed. To be honest, it’s really not worth it to completely obsess over politics. There’s far better things to do than just worrying about the way where the political winds are blowing.
For example, building your wealth.
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