Greenspan Fears Imminent Stagflationary Slump, Warns The Bubble Is In Bonds Not Stocks

Tyler Durden's picture

Former Fed chair Alan Greenspan blasphemously warned a year ago of an "imminent crisis":

"This is the worst period, I recall since I've been in public service. There's nothing like it, including the crisis - remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away. I'd love to find something positive to say."

Adding that fundamentally it is not so much an issue of immigration, or even economics, but unsustainable welfare spending, or as Greenspan puts it, "entitlements."

The issue is essentially that entitlements are legal issues.  They have nothing to do with economics.  You reach a certain age or you are ill or something of that nature and you are entitled to certain expenditures out of the budget without any reference to how it's going to be funded.  Where the productivity levels are now, we are lucky to get something even close to two percent annual growth rate.  That annual growth rate of two percent is not adequate to finance the existing needs.

 

I don't know how it's going to resolve, but there's going to be a crisis.

 

This is one of the great problems of democracy.  It goes back to the founding fathers.  How do you handle a situation like this?  And it's very troublesome, but eventually you get things like Margaret Thatcher showing up in Britain.  Their situation is far worse than ours.  And what she did is she turned it all around essentially by, as I remember it, the miners were going to strike and she decided - she knew they were going to strike.  Since at that point, the government owned these coal mines, she built up a huge inventory so that when they went on strike, there was enough coal in Britain so that eventually the whole union structure collapsed.  She fundamentally changed Britain to this day.  The fact that we are doing so well in the E.U. is not altogether clear that it is the E.U. or whether it was Margaret Thatcher.

And now, a year later, Greenspan is back, warning of the return of stagflation unseen since the 1970s...

The former Federal Reserve chairman told Bloomberg the era of sluggish expansion without any meaningful increase in inflation is bound to end -- not with an acceleration in growth, but with faster price gains. In other words, stagflation is on the horizon and that bodes poorly for the American economy.

“We’ve been in a period of stagnation since 2008 as a consequence of the sharp decline of capital investment and productivity growth,” Greenspan said during a telephone interview.

 

“But stagflation is about to emerge. We are moving into a different phase of the economy -- to a stagflation not seen since the 1970s -- that is not good for asset prices.”

And that, according to Grenspan, means trouble for risk assets. As Bloomberg reports, equity bears hunting for excess in the stock market might be better off worrying about bond prices, Alan Greenspan says. That’s where the actual bubble is, and when it pops, it’ll be bad for everyone.

“By any measure, real long-term interest rates are much too low and therefore unsustainable,” the former Federal Reserve chairman, 91, said in an interview.

 

“When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.”

However, Greenspan argues that stocks will suffer with bonds, as surging real interest rates will challenge one of the few remaining valuation cases that looks more gently upon U.S. equity prices...

“The real problem is that when the bond-market bubble collapses, long-term interest rates will rise,” Greenspan said.

We suspect Mr. Greenspan is correct...

Finally, as a reminder, In retrospect, the 91-year-old, who clearly is looking forward not backward, offered a simple solution to these problems a year ago: the gold standard.

If we went back on the gold standard and we adhered to the actual structure of the gold standard as it exited prior to 1913, we'd be fine. 

 

Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we've had in the United States, and that was a golden period of the gold standard.  I'm known as a gold bug and everyone laughs at me, but why do central banks own gold now?

Why indeed. And of course, that's rhetorical.

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Rick Cerone's picture

Nazis want higher yields.

They want their money.

LawsofPhysics's picture

Higher yields?!?!? 

LMFAO!!!!!!

What's the ten year bond yield again?

LOLOLOLOLOL!!!!!

moron.

Looney's picture

 

Could someone please hit Greenspan's head with a dildo?  ;-)

Looney

Blue Balls's picture

Fuck me Alan bonds, autos, education, construction, everything your goons at the Fed touched.

nope-1004's picture

stagflation not seen since the 1970s - that is not good for asset prices..

 

Depends who you are and if you've seen this train wreck coming for some time.  Many here realize the gross discrepancy between real and fake asset prices, fake being the price of something highly inflated by zero percent cost of money.  Witness houses.  Cars.  Education.  Construction.

Give money away and the cost of financing is all that buyers look at, not the merit of the project/asset/commodity.

Wake up old man.

BetaGap's picture

Stocks or bonds, both is a bubble.

The needle is just going to hit the bond bubble next.

The Wizard's picture

The stock bubble is a result of the bond bubble. This magical world of QE.

MillionDollarButter's picture

Stagflation and no room to move the rates lower.  All while trying to reverse QE.

Hahahahaha, good luck!  I predict "Deficits Don't Matter 2.0"

jcaz's picture

My dog knows more about what is happening in the credit markets than Alan Greenspan;

Just die already, you evil old fuck.....

python_snake's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it.!pa756d: Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2f0fLIz

Fredo Corleone's picture

"Give money away and the cost of financing is all that buyers look at, not the merit of the project/asset/commodity."

+1

eclectic syncretist's picture

Between demographics and the existing immense cost of interest on the national debt, an increase in interest rates means game over for the banksters and their Federal Reserve.

daveO's picture

An increase in interest rates would mean game over. The FED won't let that happen until the dollar is abandoned as a reserve.

taketheredpill's picture

 

Need to dig up Ayn Rand's grave first...

 

SubjectivObject's picture

Greedspam is just trying to save his historical neck from the mobs noose

he knew full well the result of Fed policy

Restless Boomers's picture

Greenspan has one foot on the banana peel already. Wonder how many blood transfusions he receives each month from Podesta's pedo cast offs? Either way, he'll be joining David Rockefeller and Brezinski soon.

auricle's picture

Gold standard means wars become too expensive. The gold standard would crush the MIC and therefore will not happen anytime soon. Sorry. The world order will be maintained through global fiat. 

BandGap's picture

Give it 500 years and he will be Yoda's twin.

That's dildo abuse, BTW.

debtor of last resort's picture

Greenspan's head IS a dildo.

cheech_wizard's picture

or if dildos are scarce, use a bunch of rolled up T-bills.

 

 

Doom Porn Star's picture

"Could someone please hit Greenspan's head with a dildo?  " -Looney

 

We probably should have let Volker use Tim Geithner to club him death like a baby seal in '09...  

stinkhammer's picture

We wants it, we needs it. Must have the precious. They stole it from us

Rick Cerone's picture

It's still not high enough, swine.

LawsofPhysics's picture

So, you are saying that you are a Nazi then?

 

I am confused...

 

No matter,

 

"Full Faith and Credit"

 

tick tock...

Its All Good's picture

Oh Greenjeans said it so it must be so.  Let's just look past that little fact that he was unable to correctly identify asset bubbles he was inflating.  No worries, I'm sure he's got it right this time...

HillaryOdor's picture

If I were in Greenspan's position I would have wrecked the economy on purpose.  People have to suffer the consequences if they're ever going to learn that government is not the solution to life's problems.  I don't think they'll ever learn anyway, but I'd do my best to teach them. 

ReturnOfDaMac's picture

'scuse me Hilliary, he did...

eclectic syncretist's picture

Greenspan was the one who set interest rates too low, and created the bond bubble he's warning about now, years and years after he started it. This is about as close to a confession as he's ever had, although speaking in coherent sentences always has been a bit of a challenge for him.

Tapeworm's picture

When was Geasepan ever right going  back to Gerry Ford and 'till now?

MFL5591's picture

Caused by him and his Tribal friends at the Federal Reserve!

Sudden Debt's picture

That's just downright stupid.

Low yields supress the money velocity and slows down the economy

secondly, it stimulates foolish investments into risky and speculative assets which pushes inflation up.

So the first slows down the economy and increases unemployment, the second makes everything expensive.

There's a shitload of bad things because of those low rates.

And the Nazi's? if they do exist, they would want the low rates as they can keep stealing your money without you even noticing it.

Grocercies doubled in price these last 9 years, water & electricity are up 30% or more, everything is way up. Incomes... not that much....

 

Doom Porn Star's picture

But, but, but, high interest rates hurtz wildly over-leveraged corporates and exposes insolvent banks and governments!!!

Too-Big-to-Bail's picture

Not a Bond Bubble, more like an everything bubble -- It's not an eye above the pyramid, it's a big fat bubble!

True Contrarian's picture

I spoke with Mr Ismay only five minutes ago in the Brandy room and he assured me that there is no danger of us sinking. 

media_man's picture

Hey Rose, would you mind moving your fat ass 12 inches?

GracchusBrothers's picture

"Mr. Ismay...Mr. Ismay come this way sir...there's a seat for you in the last lifeboat!"

True Contrarian's picture

With room for my butler to make a proper hot whiskey as well I see. By George that's excellent. The night air disagrees terribly with my opiate habits you see.

LittleMaestro's picture

Bubbles in all asset classes. Agreed. 

The old man is saying we will have a rise in inflation soon, but didn't the previous article by Mauldin say deflation is on the horizon? If I had to pick, I would choose Mauldin's view.

Restless Boomers's picture

Mauldin is a member of the Tribe too so watch out.

rp2016's picture

It was all planned exactly the manner in which it was playig out... such a big stab in the back

LawsofPhysics's picture

Interesting.  THEN WHY HAS THE FED BOUGHT SO MANY BONDS AND WHY DO THEY ENABLE THEIR PRIMARY DEALER BANKS TO CONTINUE BUYING WITH FREE MONEY?!?!?!?!?!

These fuckers really cannot help but incriminate themselves can they? Fuck em.

Jump you fuckers!!!!

SDShack's picture

Yeah, I love how Greenspan acts as if there is still a functioning bond market! Or any financial market for that matter! LOL! He's gonna need the motherload size Depends for all the BS he and his fellow bankers are crapping.

Chicago bear's picture

Fine time to talk this way. 

RhoneGSM's picture

Further proof the 10yr yield goes negative. Count on the Maestro (and do the opposite)!

Crazed Smoker's picture

Mostly women, but also some weak men voting hard left for this welfare gyno-gong show.  It's done, they've ruined it.

I am Jobe's picture

One can spread legs and the other can be ramped iup. Waiting to see the generation of girls who are going to be hookers. 

True Contrarian's picture

"It was then that Janet knew, SHE FUCKED UP."

CPL's picture

Die Janet Yellen, die.

Die Lael Brainard, die.

Die Gary Gohen, die.

Die Jamie Diamond, die.

Die Alan Greenspan, die.

Die Mario Draghi, die.