The following is from an interview with Chairman Greenspan:

RYAN: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”

GREENSPAN: “Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

29 Responses

  1. Absolutely right.

    Greenspan gets a lot of stuff wrong, but this isn’t one of them. I don’t know where you got this from, but he testified to Congress on private accounts a number of years ago. I distinctly remember him saying that capital gains on stocks don’t represent funding for real investment – almost an MMT like statement.

    1. P.S.

      Marshall Auerback did a great interview today on BNN. In it he referred explicitly to “the inflation constraint”.

      I think that’s the way to go in the message about how the monetary system works. What isn’t a constraint is obvious. But people don’t buy into the pitch that there are no constraints. So telling them what is the true constraint is important – and how it comes about to be binding – and most importantly, with what timing.

      1. Right.

        You’d think history, current bonds rates, and Japan would give reasonable people some context for the debate about the deficit.

      2. Gigantic bias on the side of bondholders?

        Deeply troubled by inflation as takings?

        Don’t understand that when money holds value better than any physical asset, people try to get money and not create value?

        Never talk to anyone who makes less than $150K a year, or people who will make that much in their 30’s?

      3. Plus just look at the 10 year yields chart vs. deficits against spending in the US.

        Since 1945- this is exactly oppositie of what neo-classical predicts, over many business cycles and several large events. The deficits as a ratio to gdp were astonishingly low in the 70’s and yet, those inflation rates were extremely high.

        It isn’t like I am a charting wizard. But I have a hilarious chart that I post that is astonishing, because it shows that we have the lowest inflation in my lifetime, despite the highest deficits. 40 years of being empirically wrong about the major test of an economic theory doesn’t prevent the Chicago Boys from barro churning out more propaganda.

  2. I’m sure Greenspan gets it but probably not for public consumption.

    Maintaining Financial Stability in a Global Economy
    Alan Greenspan – Federal Reserve Chairman
    September 1997

    Let me begin with a nation’s sovereign credit rating. When there is confidence in the integrity of government, monetary authorities—the central bank and the finance ministry—can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit. This power has profound implications for both good and ill for our economies.

    Central banks can issue currency, a noninterest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.

    That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit. To be sure, if a central bank produces too many, inflation will inexorably rise as will interest rates, and economic activity will inevitably be constrained by the misallocation of resources induced by inflation. If it produces too few, the economy’s expansion also will presumably be constrained by a shortage of the necessary lubricant for transactions. Authorities must struggle continuously to find the proper balance.

    1. Thanks for the link to this amazing speech. On the one hand it’s encouraging that at least at the Fed there are people who understand the economy’s real constraints. On the other hand it’s disturbing that the Fed is not educating policy makers and the public about these facts.

    2. I don’t fully get it. That was for public consumption – available from the Fed as soon as it was given, 13 years ago.

      Would somebody explain a little more the theory of the government conspiracy to withhold its own understanding of the monetary system?

      1. Media conspiracy of idiots and sociopaths? As Brad DeLong often says, Oh, why can’t we have a better press core?

        The info is available. The MSM is giving the austerians and inflationistas a pass, apparently because it is either grossly ill-informed or going with what sells, i.e., what scares people.

      2. no toms hickey

        brad delong is the problem. academic macro has this wrong and keep it wrong.

        reporter call professor, professor says garbage. you know alls about talking garbage.

      3. Consider the end of Raiders of the Lost Ark. As the X-files told us, The Truth Is Out There. But it is a needle in a very big haystack. In academic (macro)economics & many government publications, it is a needle in an enormous pile of something that comes out the other end of a hay-eater.

  3. JKH,

    The average person is not going to go searching central bank sites for what Alan Greenspan said. When Warren, Mike go on television and repeat the same things Alan Greenspan says, they are not taking serious, no offence intended.

    If Alan Greenspan went on FOX news and repeated what he quotes above to the average person listening he would probably be taken serious.

    This is him from 2001, when he started worrying about the government surplus, and starts to get scared that the government with its surplus is going to go around hoovering up private assets.

    Testimony of Chairman Alan Greenspan
    Outlook for the federal budget and implications for fiscal policy
    Before the Committee on the Budget, U.S. Senate
    January 25, 2001

    I don’t think it is a government conspiracy, I just think that it is a perfect example of Hanlon’s razor.

  4. Re: “I don’t think it is a government conspiracy, I just think that it is a perfect example of Hanlon’s razor.”

    I think that is wishful thinking. Malice is quite a common vice in politics, and moreover, malice does not preclude being mingled with stupidity, and conversely.

    However, to say “government” conspiracy is really too vague. The power today resides in big money. It is internationalist and completely amoral, when not frankly immoral.

    As Quigley noted: “The history of the last century shows, as we shall see later, that the advice given to governments by bankers, like the advice they gave to industrialists, was consistently good for bankers, but was often disastrous for governments, businessmen, and the people generally.”

    And: “The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank…sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”

    “It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks.”

    1. I’d like to cut Warren a little slack here by noting small banks have a difficult time accessing the perks enjoyed by the large banks, except through acquisition under duress.

    2. Can you give a little bit more background on these quotes? Where were they taken from? Very interesting.

      We can think of aggregate demand as split up into two parts: credit & equity. The credit side comes from fractional reserve banking and equity comes from government spending. Obviously the banks will prosper the more credit growth outweighs growth in equity.

      People all over the world are right to be angry, but unfortunately they are being expertly manipulated into acting in the interests of the banks.

  5. Re: Can you give a little bit more background on these quotes?

    Which quotes, Seth?

    If you mean the ones in my post, they are from “Tragedy and Hope,” by Carrol Quigley, a professor at Harvard, now deceased.

    1. Quigley spent most of his career teaching at Georgetown where Bill Clinton was one of his students. Clinton even name checked him in his 1992 nomination acceptance speech.

      As a teenager, I heard John Kennedy’s summons to citizenship. And then, as a student at Georgetown, I heard that call clarified by a professor named Carroll Quigley, who said to us that America was the greatest Nation in history because our people had always believed in two things–that tomorrow can be better than today and that every one of us has a personal moral responsibility to make it so.

  6. That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency.

    I tried to open a bank account outside the USA, banks wouldn’t take my US money. So I went and got me some asian and euro money to put in those banks, they said NO, the money is not the issue, the problem is you are a US citizen and therefore US IRS person may come sticking thier nose in our bank, so you are excluded from banking here because you are USA strawberry picker. So now I ask maxine waters how do I stop being USA strawberry picker and relinquish my USA citizenship so I can be mexican strawberry picker and guys it is MUCH HARDER than you think to get rid of US citizenship and US IRS taxman that is part of that package!! I am going to move to hong kong and pick strawberries there and marry a wife there and buy a house there and promise never to come back to USA – will that get US IRS man off my back? Or do I have to move to St. Croix like Mr. Mosler and find some way to get 3% tax deal by starting a strawberry company there?

  7. U.S Treasury web site quote

    “Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything This has been the case since 1933. The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are “backed” by all the goods and services in the economy.”

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