Greenspan talks about gold, the economy and rising profits

The former Federal Reserve chairman says gold prices are important to watch, and that people are underestimating corporate paper profits.

By Kim Peterson Mar 4, 2011 2:11PM
Credit: ((C) J. Scott Applewhite/AP)
Caption: Alan GreenspanHe's baaaaack! Alan Greenspan pops into the investor spotlight again, sitting down with CNBC to talk about the economy, oil prices and the dollar.

Earlier this week, we saw Warren Buffett pooh-pooh gold as an investment, saying he'd much rather own farmland or Exxon Mobil (XOM). But Greenspan seems to view gold as an important indicator of what's going on in the global economy, especially as central banks around the world jump into the gold rush.

"What the price of gold is saying is essentially that there are elements within the marketplace which feel very uncomfortable with respect to what's going on generally," the former Federal Reserve chairman said. "It's not an accident that you're finding that central banks are going in to buy gold."

Greenspan emphasized that he isn't calling for a return to the gold standard. That's just not doable, he said. "I do think that to get a sense of the stability of the system, watching the price of gold is not too bad." You can see more of Greenspan's comments in the following video.

Post continues after video:
There is no question at this stage that the economy is moving, Greenspan added. We have more videos of Greenspan covering a wide range of topics below.

On government activism. The degree of government activism in the economy has actually subsided in the last six months, Greenspan said. We haven't seen much in the way of Cash for Clunkers or housing programs. But the real issue is the coming implementation of the Dodd-Frank financial reform law. Some of the mandates in the law are contradictory, he added. Click here to see the video.

On rising profits. People are underestimating the impact of what we think are paper profits, Greenspan said. But they have a real effect. "This recovery that we have seen is extraordinarily related to the issue of rising earnings," he said. "There has been an extraordinary rise in productivity within in the nonfinancial corporate sector."

The result of that, he said, is company earnings-per-share have just been moving up dramatically, and the expectations continue to increase among the security analysts. That will ultimately create a very dramatic expansion of capital gains. Click here to see the video.

On the economy. Greenspan lays a pretty thick caveat on the economy here. If you set aside the budget questions, the "festering euro problem" and the high equity premiums in the stock market, the economy is close to a breakout, he says.

Well, that's a lot of issues to set aside. Of all of those, the budget is one of the most critical. Greenspan says he's very concerned that some Americans think we can dramatically reduce deficits after the economy has been ramping up for a long period of time.

"I think that is much too risky because it presupposes our ability to forecast, which we just don't have," he added. "If we get that choice wrong it is a very major mistake." Click here to see the video.

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