“If we went back on the gold standard…we’d be fine.”
Alan Greenspan says economic stagnation compounded by bipartisan refusal to bring social benefits under control has brought about the worst period he has seen in his public service career. The 90 year old economist and former Chairman of the Federal Reserve told Bloomberg Television interviewers that “productivity growth has ground to a halt” while the money supply is “going up remarkably steadily 6 percent, 7 percent, almost a straight line” including a point or two in the last several months. He says this type of economic environment ends with inflation.
Mr. Greenspan says the annual rate of growth in the US of close to two percent is insufficient to finance the ever-increasing demands of the social safety net for the sick and elderly. Yet, in an election year, he says neither party is willing to address the issue for fear of losing votes. “This is what the election should be all about in the United States. You will never hear one word from either side.”
Brexit Complicates Matters
Speaking of votes, Mr. Greenspan referred to the UK referendum on exiting from the European Union as a “terrible outcome in all respects” which “didn’t have to happen.” But happen it did, and now “we are in the very early days of a crisis which has got a way to go.” He pointed to the strong possibility that Scotland would likely have another referendum of its own and successfully separate from Great Britain, with Northern Ireland likely to follow. He noted the irony of the EU struggling mightily to keep Greece (which he referred to as a “toxic liability”) in the Eurozone, only to see its second-largest member willingly depart.
The week after the British referendum, all US markets continued to decline, with some economists predicting the European turmoil would stunt American growth at least slightly. Goldman Sachs reduced its growth forecast for the second half of 2016 to 2% from 2.25%. Traders are presently betting that the Fed will have to, once again, hold off on raising interest rates in order to add stimulus to the economy. Meanwhile in Britain, there seems to be no question that the domestic economy will stumble; the only question is how hard. What is further certain is that uncertainty will continue to reign in the markets as the UK and EU try to sort out their not-insignificant differences.
Crisis Not Here, But…
While Mr. Greenspan hesitates to say he sees global inflation “on the horizon,” he says he would not be surprised. “You don’t have inflation now. And you don’t have it until it happens.” Little more than a year after publicly stating that he did not condone a return to the gold standard, he does now. “If we went back on the gold standard … as it existed prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the United States, and that was a golden period of the gold standard. I’m known as a gold bug and everyone laughs at me, but why do central banks own gold now?”