In his prime Alan Greenspan had a reputation as a ladies’ man. He was known as a bachelor about town for decades before marrying the glamorous Andrea Mitchell, one of America’s top television journalists. I was puzzled because, on the face of it, the former chairman of the Federal Reserve was as gnomic as his economic pronouncements.

Friend of economic egghead Gordon Brown, counsellor to five presidents since Richard Nixon – all that I could believe. But I was surprised to discover that in person he is charming and attentive, with a gentle smile and mellifluous voice. At 81 he is still an extraordinarily powerful figure after serving as America’s banker for 19 years. When he recently predicted the nation could go into recession the markets trembled.

Naturally I assumed I would barely understand a word he said, since financial geniuses have made and lost fortunes on Wall Street and in the City interpreting the maestro’s opaque sayings. Adding to his air of mystery, his secretary helpfully gave me the address of his Washington office but warned there would be no outward sign of his presence.

However, the Greenspan I met was off the leash. “When I left the Federal Reserve I felt a certain freedom of my soul,” he says. “I was fascinated the first time I got into an elevator. It was the first time I had been by myself in almost 20 years. There were no secret service agents.”

He has been forecasting frankly that house prices will fall and inflation will rise in Britain, with no sign of obfuscation, another headache for Mervyn King, the beleaguered governor of the Bank of England, who faced a grilling last week by the Treasury select committee over the Northern Rock fiasco.

Greenspan’s memoir The Age of Turbulence (Allen Lane) contains the startling hand-grenade admission that the Iraq war was “largely” about oil. “I was saddened that it was politically inconvenient to acknowledge what everyone knows,” he writes.

When The Sunday Times put the news on its front page last week the story went global. An uncomfortable-looking Robert Gates, the American defence secretary, was forced to respond on television that, “I just don’t believe it’s true”, although he admitted he was not around during the run-up to the war.

Greenspan, on the other hand, was dishing out advice at the highest levels of the Bush administration. “It was self-evidently about oil,” he tells me. “Ask yourself, if a similar activity was happening in, say, East Timor, do you imagine anything happening as a consequence?”

It was a “gotcha” moment for antiwar protesters, but unlike them Greenspan thinks oil is a legitimate casus belli. “I was in favour of taking Saddam out,” he explains. “I’d been watching him for 30 years.”

Saddam had been trying to move into Iran, into Kuwait and into the huge oilfields of Saudi Arabia with the aim of controlling the Strait of Hormuz, “which fuels the civilised world, if you want to call it that any more”, Greenspan says. “To have somebody of that nature in control of this was extremely dangerous for everyone . . . I said, ‘We have got to take this man out before he does incredible damage’.”

Greenspan was also afraid that Saddam would eventually get his hands on a loose Soviet nuke – there are plenty around, he fears – and “scare everybody into inaction”. Better to act now, he counselled.

It was the shock of the 9/11 attacks that influenced Greenspan’s thinking. In hindsight it is easy to forget how vulnerable America’s economy appeared. He was abroad when he received news the World Trade Center had been hit. He refused to look at television pictures before he flew back to America on a specially commandeered plane.

“I actually saw the buildings go up, step by step, in lower Man-hattan and I knew large numbers of people who must have been killed. And I realised it hurt too much. To this day I have gone out of my way not to see it,” he says.

He fully expected there would be a series of follow-up attacks, on Wall Street or in suburban shopping malls, and was mystified when nothing happened. “I seriously expected we would run into a nuclear device.” Economic activity, Greenspan notes, can survive wars and terrorism, even in Iraq, but “fear is critical because it causes people to withdraw from whatever they are doing”. Those who accuse him of having fuelled the present down-turn with low interest rates and easy credit may be underestimating the role he played in steering the US back to prosperity.

But the “war on terror”, he admits, has had unfortunate consequences. As a libertarian, he is troubled by the restrictions on civil liberties that followed the attacks. When I suggest that he must also disapprove of the detention centre at Guantanamo Bay, he replies: “Exactly.”

“This whole period is so unfortunate,” he says. “You can’t open up your society to all sorts of people coming in to destroy you without trying to do something . . . but if I were somebody who looked like a Muslim it would be awful.”

In his book Greenspan makes it indirectly clear he is relieved the Bush-Blair era is drawing to a close. Evidently he never regarded Tony Blair very highly. When they first met he thought “Blair was clearly an aide to Brown”.

Brown is “extraordinarily well educated”, he says. “Bill Clinton used to say that he and I were an odd couple. Well, in a certain sense, so are Gordon and I.” He thinks it was Brown who “pushed for me to get an honorary knighthood”, which he was as pleased as punch about. They keep in touch by e-mail and he says their wives are friends.

Although Greenspan is an economic adviser to Brown, “strangely, a good deal of our conversations have nothing to do with advising”, he says. “He has been sending me books on the Scottish Enlightenment.”

For all Greenspan’s concerns about the British economy, he believes it is in safer hands than America’s. He is particularly scathing about the massive US deficit and Bush’s inability to veto spending bills in Congress. “The president has said he is in favour of larger government but more efficient government. I believe that it’s a contradiction, an oxymoron.”

He did not get on with the first President Bush either, recalling how Bush Sr told David Frost in a television interview that “it was I who cost him the election in 1992. The American economy was really moving up in 1992 and if he couldn’t make it work it was not my fault”, he says coldly. The only Bush he had an “unequivocally good relationship” with was Barbara, the first lady and first mother. “Love her!” he says. “That’s a spunky lady.” In contrast he describes President Bill Clinton as “seriously fiscally responsible” and “politically courageous”– even though Greenspan is a lifelong Republican. Clinton was as clever as Nixon, Greenspan recalls, but they both had a “certain looseness” about them.

Greenspan is advising informally some of the 2008 presidential candidates and, without naming names, it is pretty obvious Hillary Clinton is one of them. “She would not be as great a president as her husband, but she is a very smart lady, she’s experienced and she does not make mistakes,” he says.

Oddly enough, Greenspan was ahead of the curve in appointing women to run his Wall Street firm when he left for Washington 40 years ago. “I have found out that women’s intelligence is exactly equal to men’s intelligence and I don’t discriminate,” he says. He was brought up by his mother after his father left home.

As a boy Greenspan was obsessed with maths and numbers, memorising baseball scores and train timetables. He was also a talented musician who studied the clarinet and played in a jazz band (while doing its tax returns on the side). “The correlations between maths and music are unequivocal. I find it fascinating. But the explanations for why it happens are utter gibberish. I have no clue what it is. It may turn out that the genome is going to explain it.”

Intellectually he was drawn to Ayn Rand, the author of Atlas Shrugged, who championed free markets and individual liberty. Rand taught Greenspan, then known as “the Undertaker”, to lighten up and recognise there was some purpose in nonutilitarian pleasures such as reading Chaucer. She saved me, Greenspan says. “I thought nobody could defeat me in debate. I didn’t even get off the floor.”

He was married for just a year in the 1950s. When he moved to Washington under Nixon he would shuttle forwards and backwards to New York at weekends to see his mother and began dating beautiful, clever women, including Barbara Walters, one of America’s best known current affairs journalists.

He went out with Mitchell, a chief correspondent with NBC News, for more than a decade before marrying her – and even then, she likes to joke, it took a while for her to grasp that he was proposing to her. “We’re very compatible,” he says affectionately. “We like the same music, we like baseball, we like football.”

They do not have children. “I loved work and I was concerned I would not be a good father. If you can’t do that it’s a mistake.”

I wondered if his absent father had influenced his decision. “All psychologists say it has to have an effect, but I never experienced anything different so I don’t know how to compare it.”

Whether or not America goes into recession, Greenspan remains upbeat about the future. “You could write a book about the United States being in decline,” he says. “But you could have written a far more credible book that Britain in 1975 was really on its way down. And you could not have forecast Mrs Thatcher. Britain is now hugely better off than it was.”

He thinks his mother is responsible for his optimism. “She was not an intellectual but she had a benevolence about her that I inherited. I am always of the view that the glass is half full. I look on the bright side.”

Is he being irrationally exuberant, I wonder, borrowing his celebrated phrase about the dotcom boom? “Not irrationally. Rationally exuberant,” he corrects me.

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