Tags: Clinton | Greenspan | illusion | economy

Stockman: Clinton-Era Prosperity Was Merely Greenspan Bubble Finance

Stockman: Clinton-Era Prosperity Was Merely Greenspan Bubble Finance
Alan Greenspan, chairman of the Federal Reserve from 1987 to 2006.

By    |   Wednesday, 18 May 2016 02:35 PM

That Hillary Clinton has, unaccountably, stood by her man for 40 years is her particular foible. But now she wants 320 million Americans to stand by him, too, by electing her as president so she can make Bill the nation’s economic czar. As CNN reported:

During a speech in Kentucky Sunday she referred to “my husband, who I will put in charge of revitalizing the economy ’cause he knows what he’s doing.”

Actually, he doesn’t.

Bill and Hillary Clinton had precious little to do with the vaunted prosperity of the 1990s, and why another twofer would be exceedingly bad for the nation.

The roaring tech-era prosperity of the 1990s was the doing of former Federal Reserve Chairman Alan Greenspan, and it ended up being an old-fashioned crack-up boom.

It was an impersonation of prosperity built on monetary inflation and financial speculation.

Not only was it unsustainable, but it also was guaranteed to boomerang against future economic growth — and it has in spades.

The Greenspan Boom was the very fount of the financial toxins that have plagued this century: the housing and credit implosions after 2007, the stock-market meltdown and the collapse of the Wall Street gambling houses in 2008-09, the disabled, stall-speed Main Street economy since the crisis, the unspeakable windfalls to the top 1 percent enabled by negative interest rates and quantitative easing, and the desperation in the flyover zone of America that begat Donald Trump.

They all had their roots in the 1990s monetary perfidies of Easy Al.

Clinton Kool-Aid

None of the Kool-Aid-drinking “economists” of Wall Street or Washington is capable of exposing the Clinton Prosperity myth, even if they were politically inclined. That’s because they are linear-thinking paint-by-the-numbers practitioners of one or another form of the Keynesian gospel.

Accordingly, they think policy intervention — especially central-banking stimulus — makes a permanent difference in boosting economic growth, living standards and wealth.

They believe manipulating the money supply takes the kinks out of the business cycle and cancels out capitalism’s purported tendency toward under-performance, recessionary slumps and worse.

But a fair reading of the last 25 years suggests there has been no magic at all.

The massive monetary intrusion initiated by Greenspan after the Black Monday stock-market crash in October 1987 hasn’t flattened the business cycle. Instead, we have had the booms and busts of Bubble Finance.

Central bank policies have distorted, deformed and displaced economic activity, not expanded it. They have massively falsified financial prices and inflated asset values, not permanently elevated economic wealth.

The Clinton era’s purported economic success is a myth advanced by Keynesian acolytes. Greenspan’s supposed monetary magic actually stole from the future in order to pump up the 1990s economy.

Average real GDP growth of 3.8 percent a year between 1992 and 2000 led to a drastic deceleration to 1.2 percent a year in the past eight years.

Greenspan’s Fed left the future deeply and permanently impaired. The legacy consists of disappearing middle-class jobs, stagnant real household incomes, bloated government payment rolls and debilitating public and private debt.

The Greenspan Fed did this with a massive explosion in debt.

The personal savings rate plunged from 10 percent in late 1992 to 4 percent by the end of 2000. At the same time, total credit market debt outstanding soared from $15.8 trillion to $28.6 trillion — a 7.7 percent annual rate.

Debt grew 3.4 times as much as the $3.7 trillion expansion of nominal GDP, which increased at a 5.5 percent annual rate.

From this deformed equation all else followed. Most importantly, consumption expenditures began to outrun wage and salary income growth, meaning that the process of leveraging-up balance sheets in order to enable households to live beyond their means got started with a vengeance.

Peak Debt Breaking Point

It reached a breaking point of Peak Debt in 2007, and the nation’s stall-speed economy has been laboring under this burden ever since.

The boom part of the parlor trick was harvested during the 1990s. The Clintons just went along for the ride.

The miserable Obama economy being experienced by the nation’s flyover regions is essentially the Bill and Hillary morning-after.

Had the household leverage ratio not been levitated in a nearly parabolic fashion, total household debt at the time of the financial crisis would have been $6 trillion, not $14 trillion. That means that during the 1990s, the domestic economy would have been put through the wringer of deflation.

There would have been no Clinton Prosperity.

Accordingly, what America really needs is not a reprise of the Clinton twofer, but a reckoning for their corrupt appropriation from the false bubble that arose during their otherwise feckless watch in the White House.

David Stockman was the Director of the Office of Management and Budget under President Ronald Reagan. To read more of his insights, CLICK HERE NOW.

 



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That Hillary Clinton has, unaccountably, stood by her man for 40 years is her particular foible. But now she wants 320 million Americans to stand by him, too, by electing her President so she can make Bill the nation's economic czar.
Clinton, Greenspan, illusion, economy
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2016-35-18
Wednesday, 18 May 2016 02:35 PM
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