Financial War Games

Mish's Global Economic Trend Analysis: "Before getting to 'War Games' let's recap some past wisdom from the man formerly behind the curtain.

1996 - Greenspan warns about irrational exuberance in the stock market
2000 - Greenspan embraces the 'productivity miracle' and says there is no stock market bubble.
2001 - Greenspan said bubbles can only be detected in hindsight
2004 - Greenspan says there is no housing bubble
2005 - Greenspan says there is no national housing bubble even though he admits we have 'froth'

It's Different This Time

Here are some select comments from just released FOMC minutes from May 16, 2000 meeting shortly after the Nasdaq blowoff top:

Chairman Greenspan:
My own judgment, and what I plan to recommend to the Committee, is that we have an opportunity now to move the funds rate up 50 basis points, remain asymmetric, and effectively adjust our longer-term posture to a better position than the one we are in at the moment. The reason I am not concerned about moving the rate up quickly at this stage is that I think the evidence indicates that productivity, indeed perhaps underlying GDP, is still accelerating. I recognize that the staff’s estimate of productivity growth for the first [quarter] is 1-½ percent. I don’t believe that estimate for a fraction of a second. Indeed, using the available data on income and profits, which essentially reflect the unit cost structure of nonfinancial corporations, the productivity growth number that falls out of that system according to staff estimates is a 6 percent annual rate.

I think we are in a quite different environment than we have seen in the past. In such an environment real long-term interest rates have to rise, and indeed they have risen very significantly in the last several weeks. Real long-term BBB rat"