(RTTNews) - Former Federal Reserve Bank Chairman Alan Greenspan said Monday that banks in the U.S. need to hold more capital on their balance sheets and that the liquidity infused into financial systems by the world’s central banks poses an inflation threat.

Speaking via satellite to a conference in Mumbai, Greenspan said that the central banks need to diffuse the large increase in their assets.

“Unless we roll in this whole degree of expansion, we will be in trouble,” he said.

Greenspan added that unless U.S. monetary policy were tightened, inflation could begin to pick up in 2012, though he said that the global inflation rate will decrease through the end of 2009 and into 2010.

“It is critical, but it has got to be done and it is not going to be easy to do,” he said. “I am not talking 3-5 per cent inflation, I am talking double-digit inflation in the US.”

The former Fed chair made his comments two days after officials at a G-20 meeting in London suggested that banks should increase their assets reserved for economic downturns.

“I think even in non-euphoria, non-crisis times, we need to have a larger buffer than we currently have,” he said.

Greenspan also commented on economic bubbles and said that the main challenge that they posed was not identifying them, but figuring out how to deflate the bubbles without hurting their underlying growth.

For comments and feedback: contact editorial@rttnews.com

Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved

Posted in Categories: Economy, Releases, USA.

Subscribe by RSS Subscribe by Email