ACM’s Economic Advisor Greenspan on Bitcoin and Proposed Tax Plan
ACM Senior Economic Advisor and former Federal Reserve Chairman Alan Greenspan compares bitcoin, at more than $12,000 as of Wednesday, to the money issued by the Continental Congress in 1775 to finance the war effort. Even something that is ultimately worthless can create real goods and services in the near term, Greenspan says. Humans buy all sorts of things that aren’t worth anything,” Greenspan said. “People gamble in casinos when the odds are against them. It has never stopped anybody.”
In addition, Dr. Greenspan said that “we’re about to go from stagnation to ‘stagflation’. The Republican-sponsored tax overhaul plan will do “very little” to spur real economic growth but could push inflation dangerously higher.” Greenspan said the GOP plan instead should focus on reducing the deficit and heading off inflation.
“This is a terrible fiscal situation we’ve got ourselves into,” Greenspan told CNBC’s “Squawk on the Street” in a live interview. “The administration is doing tax cuts and a spending decrease, but he’s doing them in the wrong order. What we need right now is to focus totally on reducing the debt.”
“We’re in a stage where if nothing is changed, we’re about to go from stagnation to stagflation, with a significant rise in inflation and a wholly significant imbalance in the economy, which is very difficult to anticipate at this stage,” he said. “But the outlook is not exactly terrific.” Stagflation refers to a condition of high inflation but low wage growth and high unemployment, a condition that prevailed in the late 1970s and early 1980s. Rising deficits are thought in some quarters to push inflation as government policies pump more money into the economy.
Asked how much he thought tax reform would contribute to growth, Greenspan said: “Very little. The tax cuts, remember, at the same increase the deficit. All the econometrics that I’ve seen over the years tell me that when you increase the deficit and you increase the demand for funds, you’re crowding out capital investment, and capital investment is the key statistic determining output per hour, that is, productivity.”
Greenspan chaired the Federal Reserve from 1987 to 2006, leaving just before the financial crisis hit. Among other things, he is known for his 1996 warning of “irrational exuberance” in the stock market during the dot-com boom. Earlier this year, he cautioned that a bubble in the bond market was about to pop because of the persistence of “abnormally low” interest rates.
Dr. Greenspan has been an economic advisor for Advisors Capital Management since 2016.
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