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Alan Greenspan: Big trouble ahead... and higher gold prices

 -- Published: Sunday, 2 November 2014 | Print  | Disqus 

The “Maestro” delivered some stunning predictions and statements at the recently concluded New Orleans Investment Conference...

You’ve probably heard the rumors on CNBC. You may have read some commentary already from one or more of our speakers at last week’s New Orleans Investment Conference.

But now you can hear the real story, straight from the horse’s mouth.

One Of The Most Important Statements
In Our Four-Decade History

As you know, the New Orleans Investment Conference celebrated its 40th Anniversary last week. After being involved in nearly 30 of them myself, I can testify that the week following the event is a tough slog. Physical and mental exhaustion combine to make it hard to get things done.

But time waits for no one. And I wanted to rush some important news to you as soon as possible.

You’ve probably seen some early reporting from other sources, including CNBC, that Dr. Greenspan delivered some big pronouncements at the New Orleans Conference. That he did — and I’ll get to it in a moment — but he wasn’t the only one to deliver real value.

I know I’m biased, but everyone I talked with during New Orleans 2014 agreed with my view that, in terms of content, this was one of the most valuable conferences in many years.

From start to finish, our speakers were hitting home runs. I have to compliment them for their preparation. It’s a grand tradition with our event that our speakers often save their best strategies and tips to reveal here, but this year was like nothing I’ve seen before. Everyone brought their “A” game, even the panel moderators.

Of course, Alan Greenspan was our big headliner, participating in a one-on-one interview with our talented MC, Gary Alexander, and then participating in a panel discussion with Porter Stansberry and Dr. Marc Faber, also moderated by Gary.

In between these two sessions, I also had the opportunity to have lunch with Dr. Greenspan in my suite, along with a few other speakers.

I’ll have a full recap of the Greenspan presentations in our November issue of Gold Newsletter, which will be published next week. (As a special bonus, and so you can get all of the valuable insights we’ll be presenting, you can subscribe now for half price by clicking here.)

For now, I can tell you that there were a few very important points that — once you combine everything he said in public and private and translate it from Greenspeak — were extremely compelling.

To wit....

1) We are not going to exit QE and the Fed’s zero interest rate policy without some sort of a major market event. These are not Dr. Greenspan’s exact words, of course, but after quizzing him personally on the subject, I assure you he would not disagree with a word of it.

In effect, he noted that the tremendous expansion of the Fed’s balance sheet is absolutely unprecedented, actually “beyond comprehension,” and there is no easy path out of the predicament. He did outline one option — essentially a bookkeeping transfer of the Fed’s liabilities to the balance sheets of the banks — but maintained that the market would still interpret this as the Fed tightening monetary policy.

And that, he noted, would be met with a very significant negative reaction in the markets.

2) Gold is going “measurably” higher. Why? See above.

When asked where the price of gold would be in a year, Dr. Greenspan demurred, noting that he would never make a market prediction. However, he volunteered that he would gladly predict where gold would be in five years...and that it would be “measurably” higher for the very reasons I detailed above.

3) An inflationary bonfire is just a spark away. I was pleased to see that Dr. Greenspan agreed with some of the major points of my speech.

In particular, he agreed that the only reason we have yet to see inflationary pressures was because most of the money printed through QE had found a home not in the economy, but in the banks’ $2.7 trillion of excess reserves being held at the Fed, where they’re earning about a quarter-point of interest.

As I’ve been saying, once banks start lending these reserves into the economy, monetary velocity will spike and retail price inflation will take root. I compared these excess reserves to a huge water balloon of liquidity overhanging the economy, in search of a pin. Dr. Greenspan called it “kindling” awaiting a “match” (increased bank lending) to ignite into an “inflationary explosion.”

When the Maestro says that an “inflationary explosion” lies in our future, it goes without saying that we should take heed.

4) The Fed doesn’t really control interest rates. Yes, he said that. But he qualified it as, although the Fed sets rates over the short-term, the massive monetary liquidity overhanging the economy means that “once the wheels start turning, all sorts of things will start happening.”

In other words, the market will set rates, and the Fed will lose control.
Although he didn’t express it, the comparison with the stagflation of the 1970s is obvious and concerning.

5) The Fed says that total public debt outstanding is now $17.8 trillion, but don’t believe it. It’s actually incalculably higher.

In our discussion over lunch, I noted how many analysts erroneously exclude Federal debt held by the government itself, since we “owe it to ourselves” and can simply forgive the debt.

I thought Dr. Greenspan was going to take off on how inflationary this would be, but he stunned me and everyone else by taking a very different tack.

He asked us if we thought the Fed would allow, for example, J.P. Morgan to fail. Of course they wouldn’t, we agreed. So, he noted, the U.S. government has essentially guaranteed the debts of J.P. Morgan.

Thus, “no one has any idea what the Federal liability truly is, because they’ve essentially guaranteed the liabilities of all the too-big-to-fail entities.”

So unless you were somehow able to derive and total all of the liabilities of every banking, insurance or other financial institution, domestic and foreign, that the Fed is guaranteeing, you have no concept of how large the Federal debt/liability is.

That was a truly amazing — and frightening — admission by Dr. Greenspan. As was his admission that the Fed really isn’t independent...his thoughts on how he managed to work within the political system without compromising his core principles...his views on gold as currency...and his prediction that China is converting its foreign exchange from dollars into gold.

Dr. Greenspan also provided, in an email exchange after the conference, an explanation of his comment in 1998 that “central banks stand ready to lease gold in increasing quantities should prices rise.”

I’m going to present his explanation of this statement within our full review of his presentations in our November issue of Gold Newsletter. I’ll also recap some of the more-compelling presentations by our other speakers.

So if you’re not a subscriber, take advantage of this opportunity to get onboard for just half price.

And listen to what Dr. Greenspan is saying, in so many words. There’s trouble ahead with the ending of QE and the zero interest rate policies of the Fed, and much higher inflation is virtually unavoidable.

So protect yourself while you still can.

All the best,

Brien Lundin
Editor, Gold Newsletter

CEO, the New Orleans Investment Conference

P.S. We’re busily compiling the video and audio recordings of New Orleans 2014, and are scheduled to have them available the week of November 10.

This year, we’re offering audio MP3 files of every General Session presentation, plus video DVDs and online streaming of selected General Session presentations.

If you’d like to get at the head of the line for these immensely valuable recordings, click here.
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