I VISITED by phone the other day with my old friend Jim Grant, financial historian, distinguished editor of a bi-weekly interest-rate report, and devoted follower of F. A. Hayek. The subject was Mexico and, in particular, why Fed Chairman Alan Greenspan was cheerleading for the Clinton-Rubin bailout package (which appears, thankfully, to be doomed). If Greenspan is to be believed, the Federal Government’s failure to guarantee $40 billion orsoofU.S. bank loans to Mexico will mean disaster for world financial markets, leading to global deflation and depression.
Pretty scary stuff. But Grant wondered what information Greenspan has that the rest of the world doesn’t. Why isn’t the looming disaster reflected by the markets? Gold has sagged back to $375. The bond and stock markets are holding relatively steady. It is high conceit to think that one guy can predict the future, while the world’s investors remain oblivious. Central planning is in full retreat around the world, but we continue to believe the apparatchiks of central banking.
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