Posted on 05/14/2015 4:51:52 AM PDT by expat_panama
Another market disruption from higher interest rates is virtually certain, according to former Federal Reserve Chairman Alan Greenspan.
"Just remember we had the 'taper tantrum.' And we're going to get another one," Greenspan said Wednesday at the Global Private Equity Conference in Washington, DC.
"This is a very tough period to get through," he added about the Fed increasing interest rates. "Normalization is great, but the process of getting there is going to be very rocky."
Greenspan said there was no way to get around bond market volatility but said it was necessary to help the Fed and other central banks reduce overall debt.
He did not give specifics on how fast Fed Chair Janet Yellen should increase rates, currently predicted to be a highly gradual process from near-zero.
Greenspan said generally the economy had "improved somewhat" but "we are still below normal." Gross domestic product grew about 0.2 percent in the first quarter, an estimate that is likely to turn negative...
[snip]
......remarks came at an emerging- and frontier-markets-themed event filled with private equity fund managers and their investors.
Greenspan said it's human nature to be overly fearful of such countries, making for investment opportunity.
He recommended buying and holding securities in such developing countries for the long term as part of a broader portfolio, even if there was still risk.
That, he said, reflected his overall views on how most people should invest in stocks.
"The best strategy for equity investment has always been buy and hold, and forget it," he said.
"Once you start to try and trade the market. I don't care how good you are, how smart you are, you will not beat an index fund."
(Excerpt) Read more at finance.yahoo.com ...
Good morning & happy Irrational Exuberance Day! Yesterday metals soared (gold'n'silver now at $1,216.55 and $17.24) while stock indexes ended flat in mixed volume --but today futures traders are seeing advances of +0.48% in stock indexes and +0.17% for metals. Like, what could possibly happen with these announcements:
8:30 AM Initial Claims
8:30 AM Continuing Claims
8:30 AM PPI
8:30 AM Core PPI
10:30 AM Natural Gas Inventories
Alan is pining for the days when everyone hung on his every word. Back when he gave those eloquent oratories that nobody really understood but they sounded smart. May as well had Bob Dylan delivering them.
Just as qualified to formulate monetary policy and more entertaining.
It’s not the stock and corporate bond markets that cannot stand interest rates rising, it is the federal government that would see the costs of financing our massive debt swallow up the rest of the budget, forcing cuts across the board - military, social security, medicare, every sacred cow would have to be bled severely. A horrible adjustment for all of us who have become dependent on government spending (and it’s much more than 48% of us), but after the transition, we might get back to honest, market driven interest rates and prices.
It’d be nice to say “How the mighty have fallen!” but my suspicion is that CNBC still bows to Sir Alan’s imagined greatness.
“still bows to Sir Alan’s imagined greatness.”
And to their own imaginary status as being of consequence.
The math is simple enough, before the crisis 3-month T-bills paid 5% interest and now it's 0.02% --only 1/250th of what it was just seven years ago. Even with these amazingly low interest rates federal outlays for debt interest are still $230B/year. Imagine if (when?) rates go back up and our taxes are raised to support a 250-fold increase to $60T per year.
True this.
And just like the badly run Dimocrat state or city that spends 2X revenue, they will keep the balls in the air as long as possible then it all crashes.
Except the good ole USA can't declare bankruptcy.
They can, however, seize the assets of the "wealthy" (defined as anyone with a savings or retirement account.)
If raising rates will bankrupt the country how can rates ever go back up?
I don't see any way this can end well.
(But then, I'm not that smart which is why I'm reading FR)
BTW, I just did a quick calculation and wish I had not.
Even using a very low interest rate of, say, 2.5% for MMs & CDs I’ve lost about $45K after taxes for the last seven years.
Before the bank crisis I was getting 4-5%+ easily.
I see what you are saying and perhaps it’s a reasonable projection.
However, I don’t see any way people can have “their checks” taken away (or slashed to near zero) without massive rioting and other violent civil disobedience.
All the while being cheer led by the progressive press...unless the rioting is occurring inside the boundary of their gated communities.
Far more clarity than from Greenspan.
First some ups, then some downs.
But the takeaway is we all should be okay.
.
Well, I'm hittin' it too hard
My stones won't take
I get up in the mornin'
But it's too early to wake
First it's hello, goodbye
Then push and then crash
But we're all gonna make it
At that million dollar bash
.
(from 'Million Dollar Bash)
Right, like what we already got only more so. Meanwhile the professional victims who've been in charge and are responsible for it all, they'll just continue to blame the evil rich as the do now. What's going to be interesting though is how well this same ol' story's going to be swallowed by the vast majority of the American people.
I’ve posted about this before.
Years ago when Greenspam was in power and muttered his bs, a good friend who had been a CFO for a couple of major companies and local companies as well as teaching accounting and economics besides being on the board of non profits with me would call me after Lord Greenspam made one of his bs utterances.
My friends remark was the same each time.
“Did you understand what Lord Greenspam just said?”
My answer each time was no!
If Greenspam was talking in code, we as former ASA and NSG vets failed to crack the code.
So we concluded that Lord Greenspam was bsing Americans whenever he mumbled his bs mutterings.
Lord Greenspam is still uttering his bs!
Relative to Greenspan that is.
Time to make Tom Brady the Fed Chairman; he has a HOLD on Inflation and Deflation, and understands the financial consequences of both....
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