Greenspan’s Choice: Scylla or Charybdis?

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.