Hedge Fund Manager William Fleckenstein has posted the transcript of his recent speech, Is the Fed a Short Sale?. The article is a review of Greenspan’s career as a central banker, showing his total genius for making incorrect forecasts, contradicting himself, and reversing field, and indulging in a form of historical revisionism with respect to his own past statements and policies. Greenspan, in Fleckenstein’s view, has fostered a series of bubbles and bailouts, the most recent one in housing. The consequences of these distortions have not yet been fully realized, only postponed. Fleckenstein suggests that Fed’s last chip has been put on the table, that they are at this point out of ammunition to delay the crisis any further, and that the resulting crisis will descredit the central bank:
I have long believed that when the economy and stock market started to sink once again that the Greenspan Fed would be seen as the dangerous menace that it is. I also have felt that the recognition of their incompetence would exacerbate the unwinding, as folks became frightened upon realizing that the last decade had been a façade, and that people were now on their own to face and try to conquer the economic imbalances that have been created. The change in psychology that will coincide with these events is what I refer to as “the next time down.” In an environment like that, the decline in stocks, housing prices, and the dollar would negatively impact the economy, and they would all feed on each other. I will leave it to your imagination to decide exactly how ugly things may get.
