The Bubbles Mr. Greenspan has created! (page 1 of 2)

Credit has to be given to Mr. Greenspan. By bailing out the S&L Associations in 1990 he contributed to the creation of the emerging market bubble of 1994, which led to the Mexican crisis.

Then, by bailing out Mexico - with the then acting Treasury Secretary Robert Rubin's help - he contributed to the emerging market debt excesses that led to the Russian crisis and the LTCM debacle of 1998.

Again he bailed out the system with an enormous liquidity injection and created in the process financial history's biggest bubble - the NASDAQ bubble of 1999/2000.

But until then, Mr. Greenspan was only a "serial" bubble blower. He managed to create bubbles, but only one at the time and in different asset classes, at different times and in different parts of the world. But this time around, we have to give him far more credit for his monetary achievements and nominate him for a Nobel Price in bubble creation.

After all, he is the first central banker in the history of capitalism who has managed to not only create a credit bubble in the US, which has led to the entire mortgage refinancing scheme, excessive household borrowings, over-consumption, and a growing current account deficit, but he has also miraculously managed to create bubbles all over the world - in stocks and bonds of emerging economies, the currencies of Australia, New Zealand and South Africa, in housing, and lastly in Chinese capital spending, which is now growing by more than 40% per annum, as well as in commodity prices.

In addition, as a result of the growing US current account deficit, which is offset by current account surpluses in Asia, he has managed to create a bubble in foreign exchange reserves of Asian central banks. Japanese foreign exchange reserves have exploded on the upside since year 2000, whereby the same situation of soaring foreign exchange reserve growth can be found in China as well as in most other Asian countries.

So, what terrorists are to peace loving citizens - we must exclude from these Mr. Bush & Co - Mr. Greenspan is to sound money, which is not supposed to lose its purchasing power. In short, he is for the honest saver, who depends on the purchasing power of his money to be maintained for his retirement or for his children' sake, the world's most dangerous man!

In the meantime, US industrial production is hardly growing, as can be seen from the continuous decline in commercial and industrial loans.

So, all Mr. Greenspan has created is a huge financial and asset bubble everywhere in the world, but no real improvement in the US economy, which is like a drug addict and requires more and more credit to stay afloat. As someone once said, in order to avoid a hangover, you must keep on drinking...

The problem, however, is that the US requires an increasing amount of credit growth in order to keep real estate and stock prices up and to make them move higher, which in turn supports the US consumer's excessive consumption. But, at the same time, while asset prices in the US are soaring, output is not rising for the simple reason that the market has discounted this "evil" Fed induced con game.

We all know from basic economics that the only way in which monetary policy can really affect output is if it comes as a surprise - and this only in the short-term. If, however, everybody knows that monetary policy will be easy, everybody will move prices instead of output, and the monetary expansion will be "neutral" at best.

But what is now suddenly happening is that the investment community, through the market mechanism, is beginning to catch on to the fact that there is much more credit growth out there than productive capacity, and therefore prices have risen in some cases, such as for commodities, very rapidly.