Greenspan Warns A Crisis Is Imminent, Urges A Return To The Gold Standard

Greenspan Warns A Crisis Is Imminent, Urges A Return To The Gold Standard, by Tyler Durden. From an interview with Bloomberg, June 27. Alan Greenspan warned that fundamentally it is not so much an issue of immigration, or even economics, but unsustainable welfare spending, or as Greenspan puts it, “entitlements.”

The issue is essentially that entitlements are legal issues. They have nothing to do with economics. You reach a certain age or you are ill or something of that nature and you are entitled to certain expenditures out of the budget without any reference to how it’s going to be funded. Where the productivity levels are now, we are lucky to get something even close to two percent annual growth rate. That annual growth rate of two percent is not adequate to finance the existing needs.

I don’t know how it’s going to resolve, but there’s going to be a crisis.

This is one of the great problems of democracy.  It goes back to the founding fathers.  How do you handle a situation like this?

When asked if “we need an accident of history” to address this, Greenspan replied “Probably. In the United States, social benefits, which is the more generic term, or entitlements, are considered the third rail of American politics. You touch them and you lose. Now, that is a general view. Republicans don’t want to touch it.  Democrats don’t want to touch it. They don’t even want to talk about. This is what the election should be all about in the United States. You will never hear one word from either side. “

See here:

US debt to GDP, with welfare, by David Evans

Greenspan went on to say the economy is stagnant, stuck, unable to return to growth. Then, in not so many words, Greenspan effectively says that hyperinflation is coming:

I know if you look at human history, there are times and times again where we thought that there was no inflation and everything was just going fine. …  It’s not about to emerge quickly, but I would not be surprised to see the next unexpected move to be on the inflation side. You don’t have inflation now.  And you don’t have it until it happens.

The solution?

If we went back on the gold standard and we adhered to the actual structure of the gold standard as it exited 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?

All the money in the western world (literally) totals about US$ 220 trillion. The value of all the mined gold throughout history, which is nearly all available for sale, is about US$ 7 trillion. If gold is to resume any meaningful role in the money system it has to be worth at least 20% and more like 40% of the total money — so the value of gold would have to rise. Most Australian gold producers are doing well in the last six months (graph courtesy of GoldNerds):

Australian gold stocks price rise last 6 months