Greenspan's Choice: Scylla or
Charybdis?
By Nelson Hultberg
April 26, 2004
In Homer's famous epic, the Odyssey, its hero Ulysses must
endure a long series of dangerous adventures in his journey home
from the Trojan Wars. He and his men come under fire at every turn,
as some new, death-threatening predicament is thrust upon them in
their efforts to find their way back to their wives and families.
The one-eyed monster Cyclops imprisons them in his cave, while the
beautiful seductress Circe turns Ulysses' men into swine. The Sirens
force Ulysses to tie himself to the ship's mast so as not to be lured
to his death by their irresistible songs.
While navigating the narrow Strait of Messina, he and his men confront
the twin perils of Scylla and Charybdis. Scylla is a monster with
multiple dogs' heads that lives in a cave on the shore; and whenever
sailors come too close, she pulls them up and devours them. In order
to avoid her, however, ships have to pass closely by another monster
on the opposite side of the strait, Charybdis, who is equally hideous
and sucks unfortunate travelers to their deaths in an all-consuming
whirlpool.
From the days of Homer on, this plight in life where one has to
choose between two opposite evils became known to the Greeks as being
between Scylla and Charybdis. In our modern day, this conflict has
come to be known as "being between the devil and the deep blue sea," or "being
between a rock and a hard spot." The Greeks had a more eloquent style
in describing it, but the essence of the dilemma remains the same.
There are certain times in life when people and societies have worked
themselves into a choice where both alternatives spell calamity,
and the margin of escape is extremely thin or non-existent. They
often have no way out, with their only choice being to decide which
of the two calamities is less destructive.
We in America are now in one of those situations, and there is no
way out other than to choose one of the calamities as our fate. The
two calamities that confront us are massive DEFLATION, or runaway
INFLATION. We have worked ourselves into this ghastly predicament
because of a long series of misguided (and perhaps at times purposely
evil) choices that we and our leaders have made throughout the 20th
century. The year 1910 was when this morality play began.
When America's prominent bankers and politicians met on Jekyll Island
off the coast of Georgia in November of that year to hatch their
plan to monopolize the nation's banking system, they set in motion
forces that have now carried us to our modern day Strait of Messina
-- between Scylla and Charybdis. The horrible aspect about all this
is that we have no brave Ulysses to lead us through the treacherous
waters. We have only Alan Greenspan, who has demonstrated throughout
his career that he knows how to dissemble, obfuscate, and lust after
power, but not how to lead and navigate his country toward the smooth
waters of economic truth.
As the esteemed Richard Russell has written, "Alan Greenspan...of
all people knows all about the Federal Reserve and money and gold.
For this reason, I consider him one of the great 'sell-outs' of today.
Not only has Greenspan headed the Fed (he should have denounced it,
not headed it) but he turned out to be the greatest inflationist
in American history.
"Ultimately, as this bear market moves through its second and then
final phase, it will be seen how Greenspan, in allowing debt to build
to obscene proportions, caused untold harm and suffering to the people
of the U.S. Some will say that Greenspan did what he thought best
for the nation. In his guts, I'm convinced that Greenspan knew better,
but that he gave into his giant ego." [Dow Theory Letters, April
19, 2004]
This is certainly true. Sir Alan got caught up in the trappings
of power. He enjoyed having Wall Street treat him like a god. He
loved having the bigwigs of Congress grovel at his feet. He relished
riding around in the black limousines. He knew early on that gold,
not paper, was money. He knew that Keynesianism was hokum. In his
youth, he had been a follower of Ludwig von Mises and a colleague
of the famous laissez-faire advocate, Ayn Rand. He knew the history
of statist regimes, and why they hated gold so much. After all he
penned a profound defense of gold for Rand's Capitalism: The Unknown
Ideal in 1966. Yet somehow he forgot all the truths of his younger
days and bought into the self-delusions spawned from his megalomania.
It has been reported that Ayn Rand once remarked at a party in the
late fifties about Greenspan, "Oh, Alan is so brilliant, but he's
such a social climber." Seems she pegged him rather well, for Mr.
Greenspan certainly became quite skilled in the climbing game that
makes up Wall Street and Washington.
One can imagine Sir Alan at a martini lunch with Bill Clinton and
Bob Rubin in 1995 listening to the two of them outline their plan
to create a "pseudo-strong dollar." By leasing gold to Rubin's buddies
on Wall Street who would then sell it to the market, the central
banks could continue listing it on their books as an asset. The public
could be kept in the dark, and consequently the Forex markets would
not get alarmed. The dollar could then be hyperinflated, and Clinton
could then be reelected in 1996 despite the Republicans rising power
with their Contract for America.
Greenspan surely had to suppress the moral warning lights in his
brain to buy into such deception. But buy into it he did, because he
desperately wanted that third term as head of the Federal Reserve,
and the path to it was determined by courting the favor of Clinton
and Rubin.
Such are the temptations that accompany the power game in the political
swamps of Washington. They are the same today as they were in Ulysses'
day. The difference is that Ulysses rejected the temptations that
life's crucible threw at him and fought to return to his beloved
Penelope in Ithaca. Greenspan has succumbed to the temptations in
order to ride around in black limousines for another four years.
If Greenspan had possessed the integrity of Ulysses, he would have
resigned in protest in 1996 and written a grand bestseller about
Clinton's and Rubin's fraud, about the fallacies of the Fed, about
the dire need for a renunciation of Keynesianism if the concept of
a free society is to survive. But he didn't, and one must surmise
that he didn't because he enjoyed the trappings of power more than
he enjoyed justice and right principle.
As a result, we had the hallucinatory bubble of the late nineties,
when we should have gone through a corrective recession in '96 and
'97 to bring back some sanity to the markets. This is why politics
and banking cannot be joined as we have done with the Federal Reserve
cartel. Politicians like Bush and Clinton, along with bureaucrats
like Greenspan and Rubin, will always hatch dangerous schemes to
enhance their power and wealth at the expense of the people and their
rights, at the expense of the country and its stability.
The Great Blanking Out
The paramount question that now confronts us and the rest of the
world is which monster do we get consumed by, Scylla or Charybdis?
Which devastating calamity is to come our way, hyperinflation or
collapsing deflation?
Most of our pundit class, of course, denies that the choice is so
stark. Wall Street lackeys like Kudlow and Cramer and the shills
at the BLS continue to pour out their incredulous propaganda every
week about how our economy has turned the corner, how innovative
productivity will carry us through, how the consumers of America
will stay steadfast, how increased capital expenditures are just
over the horizon, etc. But then they have no choice but to blank
out on reality if they wish to continue in their prominent positions
on the power and celebrity ladders. The Keynesian paradigm they learned
in their college days must be adhered to at all costs in order for
their universe to appear sane. They must tell themselves that these
Cassandras in the hard money community are wackos. A few rough spots
may lie ahead; but the world's economies are not in any kind of meltdown
danger. The modern era has solved the problem of the inflation-depression
cycle through institution of the Federal Reserve and it's "multiplier
effect." Monetary policy will smooth out the rough spots and ignite
the economy again.
"Alas, regardless of their doom, the little victims play; / No sense
have they of ills to come, / Nor care beyond today. / Thought would
destroy their Paradise. / No more: where ignorance is bliss, / 'Tis
folly to be wise."
So wrote the 18th century poet, Thomas Gray. To those of us who
have not forgotten the eternal verities, he has summed up perfectly
today's pundit herd of Washington and Wall Street. Our intellectual
and political leaders have constructed a massive blank-out job in
face of a reality of their own making that is just too horrendous
to contemplate. So they purge reason from their minds and revel in
the bliss of ignorance.
The question then for all rational men is which monster do we get
consumed by, Scylla or Charybdis? Hyperinflation or collapsing deflation?
Upon this question hangs our future. Our Strait of Messina has narrowed
too much, and we no longer can escape unscathed. We must now succumb
to one of these calamities. Does the Fed realize this? Perhaps, but
certainly the American people do not. Do Bush and his advisors realize
this? Of course not, they are part of the establishment herd. They
believe that the Fed's monopoly money is actually wealth. They believe
that dross can be turned into gold. They believe the great Keynesian
hoax that came to visit its destruction upon the 20th century.
A very intriguing question should be answered in the next few months:
Does Greenspan realize the frightful nature of his choice, and how
will he react to the dilemma? His term is up in June of this year.
Will he opt for reappointment? Is Bush even willing to reappoint
him? Or does Bush harbor hatred of Greenspan for his rate hikes in
1992 when his father was trying to get reelected against Clinton?
I believe that a certain part of Bush's obsession with Iraq has been
motivated by the desire to avenge his father against Saddam Hussein.
If so, then perhaps Bush Jr. also dislikes Greenspan enough to affect
his policy decisions on the matter. After all, Bernanke, an "open
spigot" Keynesian, is waiting in the wings. Why not appoint him and
bring on the helicopter money. Like all good Keynesians, Bernanke
believes paper money is actually wealth and that no choice will ever
be necessary between Scylla and Charybdis?
Such are the dilemmas that humans get themselves into because
they wish to get more out of life than they are willing to put
in. Such are the dilemmas of those who hang around on the stage
of power long after they should have exited. Greenspan, no doubt,
wishes he had gotten out with Rubin when he could have exited with
his reputation intact. Now the role of a "modern day John Law" awaits
him in the history books.
Only the blind cannot see Scylla and Charybdis looming up ahead
-- waiting to consume us. As Richard Russell so sagely puts it, "What
the Fed and the US government have done is to build the greatest
edifice of debt ever seen by one country in history. And this debt
continues to build. For the US government, the debt build-up is continuing
at the rate of over $13 billion a WEEK. The current rising trend
in interest rates will bear down on this ocean of debt. This pits
the forces of deflation directly against the forces of inflation.
"This impending battle of inflation vs. deflation is going to be
one of the most critical economic confrontations seen in decades.
Frankly, I don't know how it's going to turn out -- and neither does
anyone else. In fact, I'd say 99 percent of the US population is
unaware that it's even happening." [Dow Theory Letters, April 13,
2004]
Obviously to those of us who are aware of the impending battle,
knowing which of these two scenarios awaits us would be most advantageous.
Will America explode into hyperinflation, or will she collapse into
all-consuming deflation? If that could be known, then one could direct
his investments accordingly and reap considerable profit in the markets.
If only he knew for sure.
In the long run, collapse of some kind is coming. That is the unavoidable
nature of a boom-bust Keynesian economy. But which will come first,
Scylla or Charybdis? The gamblers will try to predict and invest
accordingly. The more conservative among us will opt for gold and
cash as Russell urges.
The Two Greenspans
This writer is of the opinion that there are two different Greenspan
personas presently competing inside his soul to win the acceptance
of his mind. One of these personas would like to scamper out of Washington
in June and leave the coming collapse to his successor, but he is
torn over doing so. While he certainly worries over how best to help
the American economy, my guess is that he anguishes far more over
how it will look in the history books for him to abandon the sinking
ship that he loaded with obscene debt. He is primarily concerned
with what all political power lusters are concerned with -- how the
future generations will view him.
I believe it is also quite possible that another persona lurks inside
of Greenspan. This is the side of him that wants to believe he can
avoid having to make the choice between Scylla and Charybdis. This
is the side of him that thinks he can avoid deflation without having
to print up helicopter money. This side of him whispers soothingly
that he can actually steer the economic ship through to recovery
with low interest rates and a moderate monetization of bonds and
fiscal deficits. In this way, he can avoid being consumed by Scylla,
the hyperinflation monster. And Charybdis, with its maelstrom of
deflation, can also be avoided. He, Sir Alan, will become a sort
of modern day Ulysses. He will go down in the history books as a
great legendary hero. This side of him says that the Cassandras are
wrong, that he does not have to choose between the two devastations.
Hyperinflation is not the only way to avoid depression. If the power
of the Fed is handled properly by a leader of great wisdom and skill,
then the economic ship can navigate the dreadful Strait of Messina
and come through unscathed.
Is this possible? Can one man at the helm of the Fed guide the American
ship through to recovery and a healthy robust economy again without
incurring a devastating meltdown of some nature? Anything is possible
in the minds of the power-crazed. The socialists believed that billions
of daily prices and productive decisions encompassing centuries could
be manipulated by a group of planners behind their mahogany desks
in the Politburo. So perhaps Greenspan believes that he too can manipulate
the massive complexities of a market economy in its present peril.
I certainly don't believe such a thing is possible. I believe that
we have worked ourselves into such a stupendous level of debt that
there is now only one way to avoid the tragic whirlpool of deflation,
and that is to start flying the helicopters over the hinterland with
large crates of hundred dollar bills to disperse to the people. The
only way out is to hyperinflate our way out, which, of course, is
not really a way out. It is merely resigning oneself to picking Scylla
instead of Charybdis. The Strait of Messina is now too narrow. The
Kondratieff winter is upon us.
This is the horrible fate of countries that allow their governments
to become centralized so as to manipulate the workings of the marketplace.
Their prosperity, their freedom, and their stability become hostage
to the egos of the leaders to whom they have given such power. And
men in pursuit of power have mega-egos that have to be appeased.
So America's fate, and with it the rest of the world's fate, hangs
in the balance of a few highly flawed men vying for seats in black
limousines and places in history books.
What the Greeks Can Teach Us
Homer's Odyssey presents us with a very salient lesson here.
It was the Greek's belief that only men of great moral fiber could
navigate the perilous seas of life without succumbing to the myriad
temptations of power, wealth and sex, and thus plunging themselves
and their country into repeated devastations. And even such high-minded
men would succumb occasionally. Men, by nature, were possessed of
far too many flaws in their makeup to be able to sail smoothly through
life. But the Greeks also believed that when the Straits of Messina
and their monstrous dangers do descend upon us, it is only the men
like Ulysses who have a chance to make it through.
The tale of this Greek adventurer is an eternal classic and remains
one of the great morality tales of humankind. Homer was the Greeks'
Moses -- the first of their wise philosophers -- who spun a mesmerizing
story of power lust, and greed, and glory, of beauty sought, riches
found, and justice won. Homer taught his contemporaries about the
damnable temptations that all men and women must confront as they
journey through this world. He taught of the values that must be
honored in order for life to be true. He taught of the heroic virtues
that men must embrace in order for their souls to be sound. His tale
is quite relevant down to our day, for we have our own morality tale
unfolding right before us. While different in cultural specifics,
it contains the same temptations of the spirit and dangers to the
social fabric that the leaders of Homer's day had to confront.
How is all this to unfold? The answer lies in the fact that we crossed
the Rubicon in 1971 when Richard Nixon closed the gold window. With
that default, he sealed the fate of his country and doomed us today
to a Kondratieff winter that will be the most devastating in history.
Which will appear first, inflation or deflation? My guess is that
they will descend upon our debt-bloated ship in tandem. Scylla and
Charybdis will be united in a long, grueling, ravaging, helter-skelter,
debt-purging meltdown that will possibly last up to twenty years.
We are four years into the meltdown at present.
The end of the world is not upon us, but the end of "our world as
we know it" is. The only thing in doubt is what kind of society will
we construct as we climb out of the maelstrom? Will the advocates
of freedom prevail, or will the purveyors of statism overwhelm? Will
Ulysses and his band make it back to Ithaca and bring a restoration
of the free-market vision of Jefferson and Smith? Or will the New
Orwellians usher in their hideous world government in answer to the
economic nightmare that they themselves brought on with their greed
and hubris? Stay tuned. The jury is still out, and we the people
are part of that jury.
© 2003 Email Nelson
Hultberg .... Author's Bio .... More
articles by Nelson Hultberg
