Credit bubbles further expanding into asset bubbles in order to replace the missing “Cash Flow” from savings… this is Alan Greenspan’s legacy. Credit expansion exceeded available savings under Chairman Greenspan’s auspices.

And when the risks became untenable for the Federal Reserve to go it alone, Alan and Company began shifting the risk by raiding our Capital Stock, increasing the savings burden to the Fed’s substitute… equity extraction from the housing bubble.

Capital Investment has all but dried up, the investment in out very futures is non-existent and the chasm between credit expansion and net national savings is well north of $2.5 trillion. Speculation in “wealth” has replaced prior income producing real economic activity.

We are currently approaching our fourth, concurrent “second half recovery.”

Gains to gains to Employment, Real Wage Income and Industrial Production are as fictitious as the “Productivity Miracle” bantered about by Sir Alan. The din of “full-scale economic recovery” laced with strong employment growth, is beginning to wane.

Increasingly, the facts disavow eCONomist’s optimistic forecasts.

It is becoming increasingly clear to this observer the fiscal and monetary stimulus thrust upon us in the first half of 2004 is having a negligible effect. This must cause great concern in the Bond Market as the epic degree of bull horning to placate the Bond herd has backfired once this year and appears to be setting up to yet once again.

The last accident occurred on merely a fractional unwinding in the carry trade. Rates spiked 100 basis points in short order.

Imagine the Real Rate Risk when things don’t quite go according to plan. We will likely see days whereby Market Rates are jumping 25, 50 and perhaps even 100 basis points. The ill effects upon consumers will be most devastating.

It is best to prepare now as Chairman Greenspan has backed himself into a corner and the ground that once surrounded him is giving way.

© 2004 John Mackenzie
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