"The Maestro" Admits What We've Known All Along
Alan Greenspan, Chairman of the Federal Reserve for 19 years, is admitting publicly that the trillions of dollars sitting on the Fed’s balance sheet are going to be hugely problematic in the not-too-distant future. What started during his tenure as “easy money” through low interest rates, has expanded into quantitative easing - a roundabout way to simply create money out of thin air ad nauseam. Ben Bernanke continued down the dangerous trail that Greenspan blazed and hit the accelerator, leaving an astounding $3 trillion of excess liquidity on the Fed’s balance sheet hanging over the economy like a piano in a Wile E. Coyote cartoon.
Even though the economy is far from “fixed”, there is no apology from current Fed leadership for putting us in this inescapable and horrible position. Instead, there is the constant refrain that if they hadn’t pumped all that liquidity into the system, we would be WORSE off.
Would we really? Former Congressman Ron Paul often points out the depression of 1920-1921 as an excellent example of what might have happened had we not resorted to easy money in the past decade. You didn’t know we had a severe depression in 1920? That’s because it was short. Painful, to be sure – unemployment peaked at over 11% but fell by half the next year and by 1923 it was down to 2.3% and then we got the roaring 20’s. The government back then did exactly the opposite of what today’s experts prescribe. They slashed the federal budget by 65% in one year. They jacked up interest rates to 7%. This had the effect of a gardener pruning a bush. All of the dead weight was cleared out of the economy, making way for very robust productivity going forward. Can you imagine today’s politicians having the courage or fortitude to make difficult, but wise decisions like these? Yes, a lot of people lost their jobs in 1920, but by 1923 we were back to full employment! Today we are stuck with a chronic long term unemployment epidemic. And instead of clearing out failing businesses, we have “too big to fail” and they are propped up instead.
The truth is that the inflationary damage from QE is still waiting to explode on our economy “like a tinderbox waiting for a spark.” This is now acknowledged by Alan Greenspan, “The Maestro” himself.
Greenspan appears to be coming full circle on gold. He was an advocate for gold and the gold standard in the 60’s, when he was an Objectivist in Ayn Rand’s inner circle. Today he is saying gold will go “measurably higher” within 5 years when the inflation is unleashed.
He also says that because the gold price is so close to the cost of production, we are “bouncing around the bottom” of gold prices. Volatility could continue, but not much longer. For this reason, those in the gold market should understand that downside risk could still be as much as 20%, we just don’t know. On the other hand, upside potential is 300% - 400% “once the market gets back in gear.”
Greenspan is saying that the dollar collapse is virtually inevitable at this point and that most Americans will be surprised and unprepared. A quadrupling of cost of living will cause rioting in the streets as people lose access to basic necessities. This will continue until the economy finds its way again. For now, we are just waiting for some cataclysmic event, a “pin” to unleash a “water balloon of liquidity” on the economy and bring on hyperinflation.
When that pin finds the water balloon, the best buying opportunities will be gone for good. Gold prices will be off to the races, so time is of the essence. Hesitating could be the worst mistake of your life.