[Congressional Record Volume 149, Number 111 (Thursday, July 24, 2003)]
[Senate]
[Page S9899]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             GREENSPAN 180

  Mr. BUNNING. Mr. President, I want to share with my fellow colleagues 
an article written today by Larry Kudlow for National Review Online 
concerning Chairman Greenspan's detrimental effect on the bond market.
  Mr. Kudlow very clearly points out how Chairman Greenspan once again 
usurped his monetary role as Chairman of the Federal Reserve by doing a 
complete rhetorical 180 on deflationary pressures. As a result of the 
Chairman's verbal roller coaster ride, the bond market is trading at 
4.2 percent compared to 3.1 percent in mid-June, the worst bond market 
price rout in 9 years.
  Many people in Congress and throughout the business world blindly 
follow and trust Chairman Greenspan. I have never and will never wear 
this blindfold. This is just another in a long line of examples where 
Mr. Greenspan oversteps his bounds and causes economic malaise.
  I ask unanimous consent to print the article in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

       This past spring Maestro Alan Greenspan issued official 
     Federal Reserve statements that deflationary declines in the 
     prices of goods and services people buy was the nation's top 
     economic danger. Consequently, he said his Fed might make 
     special purchases of Treasury bonds in order to pump new 
     money into the economy, and get bond rates lower to stimulate 
     investment.
       But last week, in congressional testimony, Maestro G 
     changed his tune. Totally. Completely, Utterly. Suddenly he 
     said that next year's economy would be strong, and that this 
     revival would begin in the second half of this year. Hence, 
     his new thinking goes, deflation is apparently not a threat 
     and there's no need to add liquidity through special bond 
     purchases.
       That's right. According to our Fed chairman, we've gone 
     from deflation to reflation lickety-split. If someone from 
     the CIA--after reading documents from Niger--had pulled this 
     180, they'd be forced to take a lie-detector test.
       But what about the bond traders who trusted Greenspan and 
     stocked up on Treasuries for future sales to the Fed? Said 
     traders got their brains beaten in. Blindsided by Greenspan's 
     policy reversal, bond traders were forced to sell heavily. 
     Now the 10-year Treasury is trading at 4.2 percent compared 
     to 3.1 percent in mid-June, the worst bond-market price rout 
     in nine years.
       Fortunately, at mid-year 2003, the whole deflation shtick 
     has turned out to be a mirage, though Greenspan was unable to 
     fathom this since late last year. The dollar's value in 
     relation to the prices of gold, commodities, and foreign 
     currencies has declined sufficiently to remove deflation as a 
     real threat. There are no Japanese-style catastrophies 
     looming out there.
       And believe it or not, there is a silver lining to this 
     Treasury travail. A stronger outlook for economic growth--
     from prior Fed money-creating and the newly enacted Bush tax-
     cut plan--has driven up the real-interest-rate component of 
     the 10-year Treasury (not the inflation premium) by roughly a 
     full percentage point. So, interest rates--which had been 
     heading down for three years--are moving up.
       This is meaningful. More normal interest-rate levels send a 
     signal to consumers and investors that it is time to push the 
     button on new purchases or new capital commitments. In fact a 
     lot of folks will be rushing to beat the next group of rate 
     hikes.
       Of course, Maestro G himself told Congress that it is 
     unlikely the central bank will tighten in our lifetime. But 
     can anybody believe this guy anymore?
       That aside, with supply-side tax cuts kicking in, there's 
     all the more reason for Americans to start spending and 
     investing right now. Stock market traders, who may be less 
     guillible than bond traders, seem to have known this for some 
     time. Since March equity markets have skyrocketed over 20 
     percent.
       Democrats may be howling about false reports of uranium 
     from Niger and big budget deficits from Washington, but these 
     will be non-starter issues in next year's presidential 
     election. The stock market crowd knows a peace-and-prosperity 
     election landslide when they see one. The guys in the stock 
     trading pits have also figured out that anytime taxes on 
     investment are cut, more investment will quickly follow. 
     While bondland has been hemorrhaging, equityland has fully 
     understood an age-old axiom: When you slash marginal tax 
     rates, you always get higher asset values and more powerful 
     economic recovery.
       Watching Britain's Tony Blair standing resolute and tall in 
     the saddle next to George W. Bush, it's pretty clear that a 
     bunch of ankle-biting Democrats won't deter the age-old 
     Anglo-American partnership in their just quest to bring 
     freedom and liberty to the Middle East (and elsewhere). If 
     liberal critics would unlock their eyeballs for just a 
     nanosecond, they would clearly see that the Bush/Blair axis 
     of freedom is causing peace dominos to fall throughout the 
     Arab region. Rather than a McGovernite quagmire in Vietnam, 
     the prospect for free elections and free enterprise looks 
     better today as a result of the application of force in the 
     defense of liberty than at any time in the last 700 years.
       At home, low-tax free enterprise is also gathering force. 
     There has never been a major upturn in the stock market or 
     the economy without broad-based tax cuts. President Bush has 
     delivered--as promised--and this country's entrepreneurial 
     and ownership-oriented investor class is rightly looking to 
     much better times ahead.
       As for the bond-bungling Greenspan, perhaps the 77-year-old 
     Fed chairman will take a page from the book of Citigroup 
     Chairman Sandy Weill, who recently chose a successor and then 
     gracefully announced retirement at age 70. As usual, the 
     private sector is way ahead of government.

     

                          ____________________