With Halloween approaching we note that the Federal Reserve Chairman Alan Greenspan must be trying to cast out his inner demons. Steven Roach points out in this week's missive that Greenspan's recent written "confession" has broken the spell of monetary mystification and has "recast his perceptions of the critically important relationship between monetary policy and asset markets."
Mr. Greenspan's final battle will be for his legacy and that he is forced to take up a resurgent and impish sprite named inflation before he leaves is telling. That this is happening in the lead up to Halloween (when the devil dances) has even more significance if you know when and under what circumstances Mr. Greenspan was chosen to be a Federal Reserve Chairman.
Many hard-wired gold bugs will point out that Mr. Greenspan came onto the scene as a proponent of hard money. As a member of Ayn Rand's intellectual circle Greenspan wrote for the first issue of Rand's Objectivist Newsletter an article entitled "Gold and Economic Freedom." When Gerald Ford appointed him to the Council of Economic Advisors, Greenspan invited Rand to his swearing-in ceremony.
But like hippies who realized in the 1980s that "Free Love" couldn't pay for a mortgage, Mr. Greenspan's sold out his youthful philosophy of sound money for the dream job of Fed chairman in 1987.
For gold advocates, this controversial move is perplexing as the Federal Reserve was designed to transfer wealth from the American "people" to banks or other powerful groups. They say that it does this through inflation and monetizing government debt. But Greenspan's Objectivist philosophy is little changed except in this regard.
While hard money activists are aghast at Mr. Greenspan's deal with the devil, we note that there is one event, unmentioned in "The Maestro," that helps explain his conversion to the world of fiat money and central banking.
In 1984 Mr. Greenspan was invited to attend the Bohemian Grove, located in Sonoma County in California, north of San Francisco. This summer camp for the world's elite is a who's who list of the Republican Party, though the club has no racial, religious or political restrictions on membership.
For most participants, the Bohemian Grove is "the greatest men's party on Earth," as the once-regular attendee Herbert Hoover famously said. This is probably why another prominent member, Richard Nixon, quipped that the Grove was, "The most faggy goddamned thing you could ever imagine." Nevertheless, every Republican president since Coolidge has attended the Grove. (1)
Each summer the club holds a gathering at the Grove, usually around the last two weeks in July to perform a Druidic ritual called the Cremation of Care that centers on a 40-foot tall stone owl.
If Greenspan made a pact with the devil to become the most revered moneyman of all-time, the price was surely his ideals. We can only imagine what backwoods deal was stuck while dressed in toga garb (or drag) as the procession of Sith Lord look-alikes burned a child in effigy to appease their revered owl.
With metaphorical significance, Mr. Greenspan's participation in the "Cremation of Care" gave way to a credit binge that rose from the ashes and spread its wings across the global financial system. In an orgy of bacchanalian excess, credit bubbles may look like champagne bubbles - you always want more.
To be fair to the Druids, the ritual itself is based in fact. Druids were an order of priests in ancient France and Britain. They were pagans who held an annual celebration to their two leading gods: the Celtic sun god and their Lord of the Dead.
On the night of October 31, the Druids believed the dead came out of the graves and walked around before the Druidic New Year began on November 1. So they offered up sacrifices and had special feasts to honor them or they would be reincarnated as animals instead of people. Our celebration of Halloween has its origins in this ritual while the name stems from a contraction of All Hallows Eve.
As Roach writes, "Alan Greenspan was the pied piper of the New Paradigm and the equity bubble it spawned." Financial markets may want to know whether the next Fed Chairman has attended the Grove and danced with the devil because hangovers are a bitch.