Greenspan: Higher Interest Rates Are Inbred In Human Nature

Former Federal Reserve Chairman Alan Greenspan appeared on Fox Business this week with two strong messages for investors:

1. The United States economy is “extraordinarily sluggish,” and part of this problem is the massive amount of government entitlements. He pointed out that entitlements have grown nearly 10% a year for the past 50 years, no matter which political party is in office. This adversely affects savings, which is the foundation for economic growth – a message Peter Schiff has beensharing for years.

15 08 21 greenspan on fox

2. Interest rates have never been kept this low for this long, so a huge bubble in bonds is forming. While this could correct itself slowly, history tells us that it will likely pop quickly, with devastating effects for the financial markets.

Remember this: normal interest rates for reasonably good debt have always been in the 4-5% annual rate for millennia. We have data going back to ancient Greece, and interest rates were not all that significantly different then than now. And we have daily data going back to 1694 with the Bank of England.

“The reason this is the critical issue is it’s telling us the interest rates we’re looking at in history is almost certainly built into human time preference. It’s inbred. That means we’ve pressed the interest rates well below normal for a protracted period of time. The danger is they will begin to come up to where they’ve always been in millennia. [This is] not good [for the financial markets].”

Greenspan wouldn’t comment on the Federal Reserve’s policy in regards to a September rate hike, but the markets seem to be waking up to the fact that the Fed knows it has painted itself into a corner. The Wall Street Journal published an op-ed the day before the FOMC meeting acknowledging that “higher rates will push the economy away from the Fed’s price and employment goals” – just as Peter Schiff has been saying all year.

1 2 3
View single page >> |

Disclosure: If you are interested in storing your gold and silver abroad, SchiffGold’s  more

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.