MercoPress. South Atlantic News Agency

Greenspan comes out in support of Sovereign Funds

Alan Greenspan

Former Federal Reserve Chairman Alan Greenspan said on Monday any United States resistance to sovereign wealth funds investing in the world's largest economy would be “counter-productive.”

"The negative response is protectionism and that is counter-productive" Greenspan said at an investment conference in the United Arab Emirates capital of Abu Dhabi. "The U.S. has gained much in post-World War II globalization and for us to be pulling back makes me sad and is not in the best interest of the U.S." "Unless we allow the process to go forward we will all be losers" he added. The European Commission said on Monday it will use Norway as a benchmark for a voluntary European Union code to deal with state-owned sovereign wealth funds. Some sovereign wealth funds have faced accusations of investing for political purposes instead of profit. Sovereign wealth funds are estimated to manage about 2.5 to 3 trillion dollars, with five countries managing about 70% of this, according to a recent statement from Lehman Brothers high official, Richard Fuld. He added that the sum could reach 15 to 20 trillion US dollars in the next five years. Sovereign funds exist in China, Kuwait, Singapore and the UAE, as well as Russia and Norway, and several of them have recently injected in the range of 60 billion US dollars cash into the financial system helping struggling US and European banks. Alan Greenspan also mentioned that the possible recession in the U.S. this year may be deeper than the last two contractions. "The existing financial problems are deeper than we've had for a while, so I wouldn't be surprised if this recession is deeper than the last two shallow recessions'' Greenspan said. "We're at stall speed and when you're at stall speed, anything that goes wrong takes you lower", warned the former Federal Reserve chairman. Growth in emerging economies will continue to outstrip that of the US, while their currencies will also appreciate against the dollar, Greenspan said. He also urged nations in the Persian Gulf to move toward letting markets set exchange rates. "We have enough liquidity in the world to support more than one major currency; I doubt the dollar will fall from number one", but he also anticipated that private holdings of Euros might exceed those of dollars in the next 5 to 10 years. "I imagine that is what will happen". More specifically on the Persian Gulf countries, "letting the currency float is probably the best way to stop the flow of foreign exchange into the economy and cause inflation". Finally Greenspan insisted that globally, sovereign wealth funds "on balance" have done a "good job" and any restrictions would be a "very bad idea". He also said it was "worrying" that China and other nations are using price controls on food and energy products to limit inflation. The Federal Reserve Chairman Ben S. Bernanke, Greenspan's successor, earlier this month warned that policy will have to be "calibrated" over the next year to meet both inflation and growth objectives. Bernanke is scheduled to before Congress Feb. 27-28 on the central bank's semiannual monetary policy report to Congress.