Federal Reserve Chairman

The Federal Reserve chairman, Alan Greenspan told Congress in February of 2004:

• The imbalance in the federal budgetary situation, unless addressed soon, will pose serious longer term fiscal difficulties. Our demographics – especially the retirement of the baby boom generation beginning in just a few years – mean that the ratio of workers to retirees will fall substantially. Without corrective action, this development will put substantial pressure on our ability in coming years to provide even minimal government services while mantaining entitlement benefits at their current level, without debilitating increases in tax rates. The longer we wait before addressing these imbalances, the more wrenching the fiscal adjustment ultimately will be...
• Given the already substantial accumulation of dollar-denominated debt, foreign investors, both private and official, may become less willing to absorb ever-growing claims on U.S. residents. Taking steps to increase our national saving through fiscal action to lower federal budget deficits would help diminish the risks that a further reduction in the rate of purchase of dollar assets by foreign investors could severely crimp the business investment that is crucial for our long-term growth.

With such dilemmas being shown, the Federal Reserve might take the other option into consideration, the one Greenspan had mentioned in another statement about a year earlier “it could very well crank up the printing press and flood the economy with money.”

During Richard Nixon’s term of office as president, the largest deficit was that of 23.4 billion dollars; Gerald Ford, 73.7 billion dollars; Ronald Reagan, 221.2 billion dollars; George H. W. Bush, 290 billion dollars; Bill Clinton, 350 billion dollars; George W. Bush, 500 billion dollars. This is considered a frightening progression to say the least, we come up with the question: to what point will our creditors be willing to go in putting up with a system which is perpetually in debt in which the United States is the debtor and they are the creditors which hold billions in paper currency which has no back up? The United States’ future, as Mr. Greenspan mentions, seems to be pending on that question.

• The correlation between deficits and inflation in the end is sacrosanct: deficits lead to inflation, and uncontrollable deficits lead to uncontrollable inflation. Whether there will be a Nightmare American Inflation or not is still not very clear. Let it be noted, though, that the trend seems to be unfavorable. The people who survived the debacle of Germany were able to make it by buying gold and other tangible assets while the process was still controllable – this is one of the most famous proofs of the value that gold has as a means of asset preservation.