Bloomberg’s Tom Keene interviewed former Federal Reserve chairman Alan Greenspan at length yesterday. Greenspan commented on a wide range of topics beginning with a discussion of the political process. Greenspan’s main point was compromise is implicit in a democratic society.
Greenspan spoke further about the “fiscal cliff” America faces referring to it as huge. He said the problem is no one wants to inflict pain on anyone under any circumstances (something he has personal experience with).
Greenspan’s view that a bond crisis would be constructive for Washington, even while it would be destructive to our retirement plans and New York, was discussed. Greenspan said he didn’t consider the bond market a speculative boom. He harkened back to 1979 which he recalled vividly the 10-year note yielding 10% while people were saying rates couldn’t go higher; they went up 400 basis points after that.
Greenspan said he was certain interest rates would rise over the next 10 years. However, he warned that markets don’t behave in the simple way we’d like them to behave so he believes the rise in rates could happen suddenly as opposed to gradually.
Greenspan said stocks are very cheap and all you have to do to determine this is to look at the equity premium. He considers JPMorgan’s estimate of the equity premium to be best and pointed out it’s at the highest level in 50 years.
The interview continued with Greenspan discussing the importance of equities to the economy and financial system, his opinion on reflation, the tough issues involved in pulling back austerity measures in Europe, the ultimate triggering of inflation due to monetary easing, the continuing challenges in merging eastern and western Europe which continue to this day, his view on what is wrong with the U. S. economy, his opinion on attempts to support markets (they don’t work), his defense for not raising rates from 2003-2005 which he claims was not instrumental in causing the housing boom, and his opinion on gold as a currency.