Memo To: Dan Quayle
From: Jude Wanniski
Re: The Deflationist Fed
I'm delighted to hear from your staff that you are balking at the idea of the early reappointment of Alan Greenspan for a fourth term as Fed chairman. George W. Bush became identified with the idea when his chief economic advisor, former Fed Gov. Larry Lindsey, urged that it happen in a July 7 op-ed commentary in the WSJournal, "Reappoint Greenspan Now." The fact that Greenspan has been deified by the Wall Street Establishment and its lackies in the news media does not mean his record should not be debated during a presidential election. I personally think Greenspan should start packing his bags. After a great start in taking the volatility out of the dollar and keeping inflation wrestled to the ground, he has become an extremely poor leader of the world's most important central bank as he let the dollar soar in value against commodities. Thus we have had the worst monetary deflation of the 20th century under his heavy hand -- and for no good reason. Commodity producers around the world were crushed in the process as they tried to keep their currencies as strong as the dollar. Greenspan could say, Well, that's their problem, but that becomes the problem for the President of the United States when countries around the world rely upon the dollar monetary standard and find themselves being impoverished in the process.
Besides, as I hear you have been telling the Iowa farmers, Greenspan's commodity deflation has had downright ugly effects on America's farmers, ranchers and miners. In the last discussion you and I had on the subject, I reminded you that Greenspan had all his professional life identified the price of gold as an important signal of monetary inflation -- when its price goes up in dollar terms. Now that the dollar price of gold has fallen 33% to $256 since November 1996, when it was at the $385 level, Greenspan has concluded that the gold signal is no longer important!!! What is important now to him as an inflation signal is the level of unemployment. That's the thrust of Larry Lindsey's op-ed, where he drags out all kinds of spurious economic data to prove that we are at the cusp of a wage inflation. (He says corporations are actually giving employees stock options in lieu of wages, which he thinks is an inflationary signal! What a nincompoop Lindsey has become. I shudder to think of him as President George W's chief economic advisor or worse, his Treasury Secretary.)
I hope you got the numbers I sent you in time for your meeting with the editorial board of the Des Moines Register. Gold is down 33%.... but corn is down 32%, wheat down 42%, and soybeans down 42%. Lean hog prices bounced up a bit after 40% of the nation's hog farmers bit the dust, unable to feed their livestock with hog prices moving to a vanishing point. Greenspan is a hero in the cities, which live off intellectual value-added employment. New Yorkers are delighted that commodity prices are negative, at 20-year lows. It is shameful that when he is asked about the plight of the farmers, Greenspan so easily dismisses the problem by saying there are just too many farmers!! They have become too productive, so they produce more than anyone needs!! Let a good slug of them go out of business and we will be back in equilibrium!!
This was the answer Dean Kleckner, president of the American Farm Bureau Federation, got last January when he wrote Greenspan a letter, begging him to ease monetary policy to stop the collapse of commodity prices. Greenspan's letter of response was not quite as brutal as I characterize it here, but that is essentially what he told the farmers -- and it is how Kleckner took it. How does Greenspan get away with it, Mr. Vice President? He has an alliance with the Clinton Treasury Department, which assures the financial community that Greenspan is God, that he had nothing to do with the global monetary deflation, and that America's farmers are suffering because the Asian economies crashed and their people could no longer afford to eat three meals a day. (Maybe they should import the farmers Greenspan says we have too many of.) Remember the Time cover story of 2/15/99, with Greenspan, Bob Rubin and Larry Summers on the cover, the so-called "Committee to Save the World." Such is the power of the Establishment to turn sow's ears into silk purses. And the news media goes along with this baloney. Time did publish a short letter I wrote, which you may not have seen. I append it to this missive. Anyway, keep hammering away at the disconnect between Greenspan's genius and the misery of America's farmers and miners. Jack Kemp has been practically alone in criticizing Greenspan on these matters, but the truth eventually prevails. Even the WSJournal has lately been getting testy with the Fed Chairman, complaining that while Greenie is now ignoring the price of gold as an inflation signal, because it does not suit his agenda, he is not telling us what his agenda is. Unless sufficient pressure is brought to bear upon the Clinton-Treasury-Greenspan axis to shift to a commodity target, getting gold back up above $300 at least, our farmers will have to eat a lot of corn.