Alan Greenspan Confesses
Politics / Central Banks Nov 12, 2014 - 12:46 PM GMTBy: Investment_U
A Note From the Editorial Director: Alex Green's column yesterday struck a nerve. He decried "hard money types" as wrong in five different ways... and the comments at InvestmentU.com haven't stopped. Dr. Mark Skousen is our favorite hard money type - and, as chance would have it, he just returned from private meetings with none other than Alan Greenspan. Below is Mark's detailed account. - Andrew Snyder
"The Federal Reserve is not independent. I never said it was." - Alan Greenspan
I just returned from the 40th anniversary of the New Orleans Investment Conference, where the keynote speaker was former Fed chairman Alan Greenspan. Although he's 88 years old, he was surprisingly lucid and had a number of things to say about Wall Street.
I passed along a number of tough questions to Gary Alexander, the moderator who did a one-on-one interview, such as:
Question: Did Greenspan's determination to cut interest rates (to 1% in 2004) help create the real estate bubble?
Answer: "When we cut the discount rate to 1% in 2004, nobody complained, not even Milton Friedman. The Fed did not cause the real estate bubble. The real estate crisis was created by HUD (Department of Housing and Urban Development), which required Freddie and Fannie Mae to put a huge percentage of their mortgage holdings into affordable housing."
Question: Is gold money? (A question Congressman Ron Paul asked Ben Bernanke.)
Answer: "Gold and silver are a currency, and the only real money with intrinsic value."
Question: When you were chairman of the National Commission on Social Security Reform, why did you not consider privatization as an option like Chile did?
Answer: "I always favored privatization of Social Security, but the world was against it. We need a crisis in Social Security for privatization to be considered."
Question: Did you foresee the financial crisis of 2008 and the Great Recession?
Answer: "It's almost impossible to predict when a bubble will collapse."
Greenspan also made a number of predictions about the economy and the stock market:
- "Too big to fail policy will lead to a stagnating economy."
- "Purchases of owner-occupied single family homes are going down and there is no evidence of it coming back."
- "Inflation will rise, interest rates will rise, and gold will increase in price, I just don't know when."
Greenspan Sees American Eagle for the First Time
I had a chance to talk with Greenspan one-on-one at a luncheon after his talk. I showed him a 2014 American Eagle silver dollar, and asked him, "Have you seen one of these before? Do you know what it is?" I had bet Gary Alexander that he wouldn't know.
After examining it carefully for a minute or two, Greenspan said, "It doesn't look like the silver dollars I own." He told me he collects Peace and Morgan dollars (minted prior to 1921). Then he said, "I've never seen one of these coins before." I had to explain to the former No. 1 money man in the U.S. that it was an official legal tender silver dollar issued by the U.S. Mint, which it has been doing since 1985 (under the American Gold and Silver Eagle Act signed by President Reagan), and that 40 million are minted every year. He was astonished.
Defending the Fed
Greenspan would be a perfect witness for the defense in "The Federal Reserve on Trial," our mock trial at next year's FreedomFest. I can see Bob Murphy of the Mises Institute (the prosecuting attorney) asking Greenspan, "At what point in your career on Wall Street did you meet up with Mephistopheles and decide to renounce your mentor Ayn Rand and your support of sound money [gold] and sell your soul to the Devil himself, the Federal Reserve?"
Gary Alexander did ask a similar question more politely in New Orleans, and Greenspan answered, "I never changed my philosophy or my views, but in the real world, everything has to be compromised."
I also asked Greenspan if he knew about the mortgage frauds in subprime and no-doc loans going on prior to the 2008 financial crisis. He admitted he did.
I then pointed out that Ben Bernanke, Greenspan's successor, was well aware of his responsibilities in regulating the banks. I attended a talk given by Bernanke at the American Economic Association meetings in January 2007, where he used the words "panic," "crisis" and "stress" 34 times. He anticipated trouble before the real estate collapse of 2007 and the financial crisis of 2008.
Then I asked Greenspan, "Should Ben Bernanke have been fired as the chief banking officer of the United States for knowingly allowing the mortgage frauds of subprime and no-doc loans?"
He shook his head. "The Fed's job is primarily monetary policy, not bank regulation."
One thing Greenspan did say that surprised everyone: "The Federal Reserve is not independent." It is in bed with Washington, especially since 2008.
He thought that ending quantitative easing was a good thing, but would not want to be Fed chairman today. "I wouldn't know what to do," he confessed.
Still, he's bullish on stocks. So are we. Keep buying.
Good investing,
Mark Skousen
P.S. Join us at FreedomFest July 8-11, 2015, at Planet Hollywood, Las Vegas, when we put "The Federal Reserve on Trial." It will pit Robert Murphy of the Mises Institute (prosecuting attorney) against Jeff Madrick, author of The Case for Big Government (defending attorney) with star witnesses Steve Forbes, Alexander Green and David Stockman (former budget director under Reagan). Plus don't miss our Dream Debate of the Century, No. 1 Keynesian and New York Times columnist Paul Krugman vs. No. 1 Supply-Sider and Wall Street Journal columnist Steve Moore! Over 100 speakers in all, including Doug Casey, Peter Thiel, Charles Murray and Dinesh D'Souza. For details, go to www.freedomfest.com, or call Tami Holland, 1-866-266-5101. The first 1,000 to sign up get the "early bird" discount.
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