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Greenspan: Bond bubble about to ‘burst’ thanks to low interest​ rates

“The current level of interest rates is abnormally low, and there’s only one direction in which they can go”

(National SentinelStock Market: Former Federal Reserve Chairman Alan Greenspan poured extremely cold water on the markets this morning when he predicted in an interview with CNBC bad things ahead for the bond market.

The morning after President Donald J. Trump highlighted the stock market’s historic rise during his first six months in office at a raucous rally in West Virginia, Greenspan said low-interest rates have created a bond market bomb bubble that is about to go off.

“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 said on “Squawk Box.”

CNBC reported further:

That low-interest rate environment has been the product of current monetary policy at the institution he helmed from 1987-2006. The Fed took its benchmark rate to near-zero during the financial crisis and kept it there for seven years after.

Since December 2015, the Fed has approved four rate hikes, but government bond yields remained mired near record lows.

Greenspan did not criticize the policies of the current Fed. But he warned that the low rate environment can’t last forever and will have severe consequences once it ends.

“I have no time frame on the forecast,” he said. “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.”

Greenspan did emphasize that no one can predict when it would happen.

“It looks stronger just before it isn’t stronger,” he said, noting further that anyone who believes they can forecast when a bubble will break is “in for a disastrous experience.”

Meanwhile, the July jobs figure was good news for the Trump administration: 209,000 added to the economy, bringing unemployment to its lowest level in 16 years.

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