Greenspan Says Negative Rates `Warp’ Investment Behavior

Former Federal Reserve Chairman Alan Greenspan said negative interest rates, if pursued for an extended period of time, will eventually distort saving and investment. “I wouldn’t say dangerous, but it is clearly not productive,” Greenspan, who left the Fed in 2006 after almost 20 years at its helm, said Monday in an interview with Bloomberg Radio and Television. “The big argument about excessively low interest rates for a very long period of time is that it warps the investment pattern on real investments.”

“We’re in trouble basically because productivity is dead in the water,” he said. “Real capital investment is way below average. Why? Because business people are very uncertain about the future.”

What a shocker. His conclusion is basically dead wrong. This has nothing to do with uncertainty. Uncertainty and/or risk have always been a part of any business.

Real capital investment or CAPEX is below average, and will remain so, because there is nothing to invest in. In terms of capital markets, most asset classes are extremely overpriced. Just take a look Shiller’s Adjusted S&P P/E ratio to realize we are sitting near historic highs.

In terms of CAPEX, it is the same story. Most corporates have already borrowed unlimited amounts of money at ZERO interest rates and invested in their “plant and equipment”. Now, they have no idea what to do with unlimited and nearly FREE capital available to them. Hence the massive stock buybacks over the last few years.

No Mr. Greenspan, it is not the uncertainty about the future. It is your criminal monetary policies that have distorted our capital markets to the 10th degree. Something we are just now starting to pay for.

Bloomberg Writes: Greenspan Says Stocks Are ‘Relatively Low’ and Headed Upward

Former Federal Reserve Chairman Alan Greenspan said the stock market has room to rise from record levels.

“In a sense, we are actually at relatively low stock prices,” Greenspan, who guided the central bank for more than 18 years, said in an interview with Sara Eisen on Bloomberg Television today. “So-called equity premiums are still at a very high level, and that means that the momentum of the market is still ultimately up.”

Greenspan said the stock market is “just barely above 2007” and the average annual increase in stock prices “throughout the postwar period” is 7 percent, which leaves room for a rise.

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I am not sure why anyone even listens to this guy anymore. Greenspan only has one gear. To lower the interest rates and to flood the market with cheap credit. Let’s take a look at just some of his accomplishments.

1998 Asian Bubble/Crisis
2000 Tech/Stock Bubble and Crash
2006 Real Estate Bubble/Collapse
2007 Financial Collapse
Current Developments

Do I blame Greenspan for all of that? Absolutely. That’s what happens when you flood the market with cheap credit. You start a perpetual cycle of bubbles and crashes. The money has to flow somewhere and when it does, it creates a bubble. That bubble eventually pops and wrecks havoc on the entire economy. That leads Greenspan or Bernanke to flood the market with even more money/credit until it recovers and creates another bubble. So on and so forth until the whole thing blows up.

Greenspan has always claimed that you cannot sport bubbles. I disrespectfully disagree, but him claiming that stocks are cheap is nothing short of adding insult to injury. Anyone listening to Greenspan in this matter is likely to see their money vanish.

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