In a wide-ranging discussion on the markets and the economy on June 4, former Federal Reserve Board Chairman Alan Greenspan said that the top domestic issue facing the United States is finding a fix for the Medicare funding issue. Speaking to some 2,000 attendees on the second day of the Pershing Insite 2008 conference in Hollywood, Florida, Dr. Greenspan said that finding a funding solution for “Social Security is relatively minor in comparison.”
In a lively, wide-ranging conversation with Pershing Managing Director Frank La Salla, Greenspan responded to a question on the recent volatility in the markets and the economy by noting that the “world is turbulent, and we will need to stay that way” in order to maintain economic growth worldwide. When La Salla asked if we were headed toward an era of 1970′s-style stagflation, Greenspan agreed that “there is a risk,” since after a long period of lower inflation and long-term interest rates “we’re now heading in the opposite direction,” and concluded that “unless we handle this is a thoughtful way–and this is a political issue–there is a risk of stagflation.” Looking out 24 months, Greenspan said that “excluding oil and most food, we’ll probably have higher inflation,” but argued that “it’s much too soon to say” that the U.S. has dodged a recession, though he expects, however, that “looking back, I think we’ll say it was a mild” one.
Greenspan warned, however, that we won’t have a final verdict on whether and how serious a recession it was “until we see the end of the decline in home prices,” which he doesn’t expect to know for “months.”