Greenspan Warns of the Bubble That May Be Bursting Next

And when that bond bubble bursts, it will be fast and severe, he says
By Jenn Gidman,  Newser Staff
Posted Aug 4, 2017 1:11 PM CDT
Greenspan Warns of the Bubble That May Be Bursting Next
Former Federal Reserve Chairman Alan Greenspan answers a question at the 2014 Fiscal Summit organized by the Peter G. Peterson Foundation in Washington on May 14, 2014.   (AP Photo)

More than 20 years ago, Alan Greenspan uttered two words he'd become famous for: "irrational exuberance," which he used to warn about asset prices in the general investment market and how predicting the bursting of such bubbles was a challenging game. Now the former Federal Reserve chair is referring back to that same concept to describe a more specific, current phenomenon: that of "abnormally low" interest rates and a bond market on the brink of collapse, per CNBC, which notes the benchmark rate was pulled back to almost zero during the financial crisis and then kept there for seven years. (The Fed has since raised rates four times since 2015, but government bond yields are still lacking.) "There's only one direction in which [interest rates] can go, and when they start they will be rather rapid," he said Friday on CNBC's Squawk Box.

When and if this happens, Greenspan said, it can also have a domino effect and put stock prices at risk as well, notes The 91-year-old financial guru made sure not to blame current Federal Reserve management—he left in 2006 after serving as its head for nearly two decades—and he noted he himself didn't have any reliable prediction for when this collapse may take place. But he says it will likely be precipitated by a robust-looking landscape right before it all falls apart, which would send everyone reeling. As for those who think they can try their hand at analyzing the data and figuring out when this possibly calamitous event may happen, Greenspan says they're setting themselves up for a "disastrous" experience. (These columnists say Greenspan is off the mark about the bubble.)

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