On Feb. 15, former Federal Reserve Chairman Alan Greenspan was a guest on the CNBC business network to speak on the economy, and the upcoming sequester issue facing Congress. In his nearly 11 minute interview, the former head of the U.S. central bank stated that it was the stock markets, over all other indicators, that is the key to the economy and economic growth.
"I find it very difficult to find a scenario in which [the sequester] doesn't happen" But when asked how this will affect the economy, Awkward Alan is unusually clearly spoken - "the issue is how does it affect the stock market."
While not so many of our leaders have taken the path to direct truthiness, Greenspan somewhat shocks a Botox'd and babbling Bartiromo when he admits "the stock market is the key player in the game of economic growth."
Bartiromo shifts uncomfortably in her seat, strokes her imaginary beard and stares blankly as Greenspan explains that while the sequester will have a real effect on the real economy, "if the stock market can hold up through this, then the effect will be rather minor." - Zerohedge
Since the 2008 credit crisis, and in particular, since 2010 when the central bank began massive quantitative easing (QE) policies, the Federal Reserve has been involved in propping up the stocks markets to levels not sustainable through normal commercial and retail investing. In fact, a recent report shows that the Fed has affected the normal flow of markets by intervening and manipulating stocks and other equities at trading levels of over 81% of all trading days. This means that the central bank has focused more time, money, and effort on a market indicator that is not even in their original charter, and has done little to improve lending conditions, curb inflation, or lower unemployment.
Because the stock markets are the most visible economic indicator to the public each day, the perception has always been that if the markets are rising, then economic growth must be occurring. This fallacy and incorrect paradigm can easily be discounted by seeing the raw data of a myriad of other indicators, which are not limited to housing sales and prices, unemployment levels, and of course, the true indicator of economic growth, the Gross National Product (GDP).
Below is a list of 14 economic indicators at both 2007 (credit crash), and Feb. 2013 levels.
Silver: Oct. 2007=$13, Today=$30
Gold: Oct 2007=$760, Today=$1,620 (or whatever they hammer it to...)
Reported Unemployment: Oct 2007=4.7%, Today=7.9%
Case-Shiller Home Index: Oct 2007=190.9, Today=144.9
New Home Sales: 2007=774K, 2012=367K
Housing Units Built: 2007=1,500K, 2012=651K
Fed Reserve Balance Sheet: Oct 2007=$873B, Today=$3.11T
Food Stamp Recipients: Dec 2007=28.7M, Today=48.2M
Federal Spending, Annual Rate: 2007=$2.7T, Today=$3.6T
Fed Tax Revenues, Annual: 2007=$2.5T, Today=$2.4T
Retail Gasoline Price: 2007=$2.84/gal, 2012=$3.68/gal
Money Supply: Oct 2007=$851.6B, Today=$2,760.7B
Personal Bankruptcies: 2007=801K (75% up from 2006), 2012=1,245K
Foreclosures: 2007=405k (40% up from 2006), 2012=742K
As the data shows, these 14 primary and secondary economic indicators are much worse than when the Federal Reserve chose to intervene in the stock markets, and pump tens of trillions of dollars into it through artificial stimulus. While the stock markets have nearly reached all time record highs, the rest of the economy has in fact decreased, with 4th quarter GDP for 2012 falling into a negative range.
The truth of the stock market is that the buying and selling of equities, whether on the Dow, Nasdaq, or S&P 500, does very little to help or stimulate an economy. Once a company goes public, and shares are sold via an IPO, or through private auctions, the company receives no more money from investors to grow, or create jobs and revenue. The only money made in the stock markets are by individuals, and unless they spend their profit and capital on consumer goods and services, it does nothing to the overall growth and GDP of an economy.
Former Federal Reserve Chairman Alan Greenspan has little choice but to speak the policy line for current central bank policies, for to undermine these efforts would bring a devastating effect to the public's confidence in the system. The stock market has a purpose for both corporate insiders, and the public, in allowing a diversification of investments based on the potential growth of a company, and the confidence people have in their services. However, the stock market is not a primary or key indicator of economic growth, and for Alan Greenspan to boldly make this statement on public television, brings to question his credibility and legacy, as the central banker who helped create the most devastating economic crash in our nation's history.