classical economics
for analysis,  forecasting
and policy design

Uncle Sachs Rules

Greenspan, Naked Short Selling and Fraud Abide
By Wayne Jett © September 19, 2010
     In all Alan Greenspan’s years chairing the Federal Reserve (1987-2006), “the Maestro” played only the Phillips Curve Symphony: destroy jobs to fight inflation. Now Greenspan has composed an equally dismal refrain: raise tax rates to reduce deficits. At least this service to the dominant elite is slightly less unseemly, now that he is paid directly by them rather than by their central bank.
     Greenspan was interviewed for an hour by Mort Zuckerman at the New York-based Council on Foreign Relations.  The CFR has 4,000-plus members who act to various degrees in a high-powered secretariat to advance “the new republic” in taking full power unencumbered by the U. S. Constitution. Greenspan told CFR the Obama stimulus spending was not nearly as successful “as many had hoped” because government deficit borrowing crowded out private growth.      
Tax Hikes Will Help?
     How does one make stimulus “activism” less obtrusive in slowing the private economy? Simple, the Maestro says – just raise taxes on the private economy so federal deficit borrowing will be less. And, surprise! The Wall Street Journal treats Greenspan’s advice as more substantive than a punch line on The Gong Show, a totally undeserved accolade.
     When borrowing for stimulus spending (alternatively called “bailouts” or “looting”) hurts the private economy, as forecast here, any rational person without malevolent intent stops the spending. But those who wake each morning seeking ways to crush the productive class do, in fact, have malevolent intent. So they advise adding obtrusive, activist government taxing on top of obtrusive, activist government spending. There – that should put the private economy back in good health pronto!
     Just picture this: A small business owner steps in front of Treasurer Geithner and says, “Stop! Do not borrow another dollar from China or Japan. Take my capital instead as taxes, so you don’t have to repay it. Now I can get back to growing my business.” Preposterous!
     The premise is beyond idiotic. It is evil. Who would possibly suggest (without being laughed out of town) that a private business would prefer having dollars taken as taxes from its own pockets, rather than having the same number of dollars borrowed from a foreign country? No one except a shill for the dominant elite. In that role, one is always treated by “mainstream media” as an anointed guru.
     Greenspan says this is “the first time in [his] memory” he has supported a tax increase. So he must have a small increase in mind. Right? Just let the Bush tax cuts expire at year-end. Sounds like a small thing, unless you recall those who opposed the Bush tax cuts called them “trillions of dollars” in gifts to the wealthy. Greenspan is crueler in this respect than even President Obama, who proposes income tax increases only for individuals earning $200,000 and couples earning $250,000 to dig the current economic depression deeper next year.
The Gold Price Signal
     Let’s examine the great man’s thinking further. Greenspan answered questions at CFR to the effect that the price of gold is actually a monetary signal importantly indicating the value of currency in paying debts. Isn’t that a hopeful sign that he, the CFR and maybe even the Fed might hearken to that signal and find a stable equilibrium value for the dollar?
     In a word, no. Does anyone believe Greenspan, the CFR and other Wall Street players have been confused about whether the price of gold tells a currency’s value? Of course, they have understood this all along.
     Greenspan knew, as did his colleagues on Wall Street, the implications of a sharply declining gold price in 1996-2001, when gold fell from over $400/oz to a low of $252/oz. But he and Lawrence Summers at the U. S. Treasury stiff-armed directly communicated warnings in 1997 on precisely that point. Their Wall Street sponsors knew how to exploit inevitable effects of real deflation. Falling prices and corporate profits allowed Wall Street to enjoy the delightfully profitable crash of 2000-2002, as Goldman Sachs permitted hedge fund clients to evade the up-tick rule and to sell shares naked short.  All this Greenspan obfuscated at the time as a “high-tech bubble,” which is economic jargon meaning “you don’t need to know.”
      Greenspan and now Ben Bernanke also understood implications as the gold price rose from $350/oz in 2003 to $1275/oz this past week. This 364% rise in gold price means 73% dollar devaluation, and certainly gained their attention long before now because it signals such a drastic loss in currency value relative to what Greenspan knowingly calls the “ultimate means of payment.” Yet the Fed added dollars to the monetary base while raising the funds rate above market to keep small business from growing, intentionally producing this devaluation.
      Since they know gold price is the ultimate measure of currency value, why have Greenspan and Bernanke never professed an aim to achieve stability in the gold price? If they stabilize the gold price in dollars, they extinguish dollar inflation without the need to destroy jobs intentionally as they do presently according to Phillips Curve theory. But the dominant elite would favor seizing privately owned gold, as FDR did in 1933, rather than return the dollar to a gold anchor.
Financial Fraud is the Culprit
     Greenspan, Bernanke and Wall Street players have understood all along the implications of the gold price. But they deny it, except in conversations within the CFR brotherhood. They continue telling the public obtuse falsehoods to cover enormous manipulation in U. S. financial markets. The Fed is near the center of these activities, but is only one element of a complex array of manipulative practices. Here are examples.
•       The Fed, the FDIC and other banking regulators pressure banks to refrain from lending to small business, thereby assuring no economic recovery and no job creation will occur. With no bank lending and tax increases, higher unemployment will cause the foreclosures and home price collapse Greenspan says he fears.
•         High frequency, computer-driven trading by Goldman Sachs and other Wall Street players drive retail investors from the financial markets by front-running every securities trade, manipulating share prices and stripping hundreds of millions in capital from other investors daily.
•        Despite its lower public profile since the Obama regime took power, naked short selling is as much a destructive force in U. S. financial markets as ever. You may presume Goldman Sachs does not borrow shares sold short in its HFT computer operations and does not check availability of shares to borrow in micro-seconds between trades. HFT is presently 70% to 80% of all trading as other investors flee the markets. The Securities & Exchange Commission postures and does nothing.
     Germany has banned naked short selling of all its corporate shares and bonds, hoping to survive as a republic. The European Community edges grudgingly in that direction, obviously bucking tough opposition from financial manipulators. U. S. Treasurer Timothy Geithner, the ultimate man-servant of the dominant elite as president of the New York Fed until his move to Treasury in 2009, opposes any ban on naked short selling and lobbies against limitations on cash-settlement credit default swaps – one of the most destructive derivative tools for creating risk without production.
Polite Debate
     In the face of all this, not to mention the on-going economic depression and inevitable default on U. S. sovereign debt looming ahead, the supposedly responsible financial journal runs a symposium of Keynesian opinion on how to get out of this ditch and run into the next one. Other advice coming primarily from the Hoover Institution wisely warns against higher tax rates and favors both reduced federal spending and “rule-based” economic policy.  But these advisors fall right back into the abyss of manipulated interest rates as the primary tool of monetary policy. This is akin to rescuing Americans from a lions’ den through a revolving door which forces them right back into the teeth of their predators.
     Admittedly the monetary policy advice given by the Hoover fellows is superior to Fed practices since 1996, but it permits the Fed to return to serving Wall Street’s manipulative desires at any time, as experience shows too well. The monetary rule which ought to be enacted as law and pressed upon the Fed is this: the Fed shall manage the size of the monetary base so that the market values the dollar at or about $700/oz of gold.
     But the idea to bar all new regulations for three years would mean three more years of unmitigated financial fraud in U. S. markets. Far better to roll back Sarbanes-Oxley, bar naked short selling completely and ban cash settlement credit default swaps without further delay.
     Polite discourse serves well in a free republic. But the elite who hold power in America will not give way to reason, nor will they honor constitutional rights of the people. Those able to influence the outcome of this confrontation must act soon or lose the opportunity. ~