Greenspan predicting big financial trouble… and soon (video)

Former Federal Reserve Chairman Alan Greenspan warned Friday that the United States is about to pay a hefty price for years of artificial economic recovery propped up by abnormally low interest rates from the central bank. Greenspan said the nation’s bond markets will collapse first, rapidly bringing the rest of the economy with them. 

“The current level of interest rates is abnormally low and there’s only one direction in which they can go, and when they start they will be rather rapid,” Greenspan told CNBC’s “Squawk Box.”

While Greenspan said he has no timeline for exactly when the markets will falter, current trends stacked against historic economic data suggest Americans are currently witnessing the calm before a big financial storm.

“I have a chart which goes back to the 1800s and I can tell you that this particular period sticks out. But you have no way of knowing in advance when it will actually trigger,” he said.

The finance expert added that a bursting bubble always “looks stronger just before it isn’t stronger.”

Greenspan suggested that only investors who understand that will be able to weather the coming storm.

He said: “I’ve been around an awfully long time. You have various different ways of forecasting prices. There’s only one — there’s only one strategy that I know of, which works all the time, and that is that stock prices will always rise more than any other prices, because the fear factor in prices is a human nature response, and people who want to sit through markets, in other words, buy and just hold should come out with the best records. The trouble is, once the markets start down, people physically are discomforted, and have to sit themselves back down to the sleeping point, as they used to call it. And if you can get around that, you’ll do very well.”

Greenspan declined to give any specific advice about where investors ought to be putting money leading into the likely downturn.

But if history is an indicator, investment opportunities that create wealth under even the harshest economic downturns are usually tied to critical infrastructure. That’s because when the economy dumps, the government attempts to reinvigorate via public works spending. Today, the nation’s deteriorating electrical grid is a top candidate for a stimulus-driven overhaul because of its vital importance to national security. Check out this special report if you’re interested in ground-floor investment opportunities in energy infrastructure .

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