Greenspan’s Admission

A reader, Bonus Gift, offers his wisdom in response to the recent post regarding understanding our crisis:

EconomicNoise.com

The Kohn comment: “We keep trying to bring spending from the future into the present with lower and lower interest rates… There is a lot we don’t understand about what is going on” remind me of the exchange between Alan Greenspan and Ron Paul some years ago:

Mr. Greenspan: “Let me suggest to you that the monetary aggregates as we measure them are getting increasingly complex and difficult to integrate into a set of forecasts. …The problem we have is not that money is unimportant, but how we define it. … So our problem is not that we do not believe in sound money; we do. We very much believe that if you have a debased currency that you will have a debased economy. The difficulty is in defining what part of our liquidity structure is truly money. … That does not mean that we think that money is irrelevant; it means that we think that our measures of money have been inadequate and as a consequence of that we, as I have mentioned previously, have downgraded the use of the monetary aggregates for monetary policy purposes until we are able to find a more stable proxy for what we believe is the underlying money in the economy.”

Dr. Paul: “So it is hard to manage something you can’t define.”

Mr. Greenspan: “It is not possible to manage something you cannot define.”

In short, and even though their primary job is controlling the money supply, they don’t even have a definition for it (i.e., they still don’t). In fact, they readily admit now that not only don’t they understand what constitutes the money supply but that they don’t understand why dropping/forcing the short nominal rate to about zero doesn’t result in Skittles and unicorns for everyone.

The monetary equivalents of the Great Oz are not only incompetent, but they are incapable of understanding what they do and why they do it. In fact, they even admit as much now in public forums when it is plainly clear to an idiot that the solution to too much debt isn’t more debt.

The problem with the socialists/communists is that they want to believe that the solution to too much government is more government, when it is plainly clear to an idiot that the solution to too much government, debt, regulation, etc. is not more of the same. In short, for me, watching they[sic] admit their ignorance and display their stupidity is both fascinating and appalling; because it affects so many in such negative ways.

http://www.economicnoise.com (http://s.tt/1mvVy)