The establishment's go to interviewer, Charlie Rose, sat down at the Harvard Club on Friday with former Federal Reserve chairman Alan Greenspan.
Rose interviews can often be dull because he won't punch any of these guys with tough questions, but the Greenspan interview proved fascinating, aside from Greenspan being politically correct and saying some positive nonsense about Geithenr, Paulson and Bernanke, Greenspan touched on a number of important topics.
He came right at the start of the interview and said that Greece will default and is even more bearish on Greece than I am. He believes that the default could occur during the current round of bailout talks, while I think Greece has until September, perhaps longer.
Of note, Greenspan used the term "time preference" during the interview, which is a concept that is most often associated with the Austrian School of economics. He was also very good in explaining some of the problems with regard to the Dodd-Frank Act.
But most important were his discussions on inflation, U.S. government debt and excess reserves.
At the 14:30 to 16:00 mark, he pretty much makes the same case that I do that there is huge amount on new liquidity in the system and that this will ultimately result in significant price inflation. I'm with him 100% here.
At 19:00 to 21:00, Greenspan discusses the debt problem and notes that most think the U.S. has about two years to solve the debt crisis. He suggests that a crisis could happen at anytime, which he says, in his understated manner, "would not be good for the United States." Again, I totally agree. At some point, given the current debt load, the lack of buyers for the debt, and inflation, interest rates are likely to skyrocket causing a huge crash in the bond market.
Finally, at 24:00 to 26:00, Greenspan discusses the technical concept, excess reserves. This is a topic I have been harping on. I have consistently pointed out that most of the QE1 and QE2 money pump never entered the system and is simply sitting as excess reserves with the Fed. Thus, those focusing on a QE3 are looking in the wrong direction. Like Greenspan, I believe that there is plenty of fuel in the Fed tank sitting as those excess reserves. If this money starts to flow out at rapid rate, the money supply could explode almost overnight---which would be very inflationary.
Bottom line: Greensapn makes clear, from Greece to price inflation to the U.S. government debt, to Dodd-Frank, there is much to worry about in the economy. This is the most blunt, though spoken in Greenspanese, warning I have seen come from a member of the elite insider circle. Do not take the message lightly.
The full interview is here.