This week, former Federal Reserve Chairman Alan Greenspan made a rare public appearance, leaving many to wonder when we last heard from him. Unfortunately, the long-exalted economist seems to be in a state of deep concern.
In an interview with Bloomberg on Tuesday, Greenspan expressed that he has remained pessimistic for “quite a while.” This marks a sharp departure from the optimistic viewpoint he maintained during the boom of the 1990s. So, what has prompted the Maestro to adopt such a grim outlook?
Factors like China’s economy, the status of the dollar, Dodd-Frank regulations, and various uncertainties all contribute to his current perspective. However, what deeply troubles him is the ongoing issue of entitlement programs. Greenspan stated that he “won’t be [optimistic] until we can resolve entitlement programs.”
According to him, “Nobody wants to touch [entitlements]. But it is gradually crowding out capital investment, which in turn is stifling productivity and diminishing living standards.” It’s evident that the financial strain of funding entitlement programs is growing significantly each year. As an increasing share of GDP is directed towards these programs, less is available for capital investment. The cycle, as Greenspan points out, is detrimental and straightforward. Continue reading
Life appears methodical, almost choreographed. We have a precise sequence: 60 seconds make a minute, 60 minutes make an hour, and 24 hours comprise one full day, the earth’s rotation.
Likewise, the moon completes a full orbit around the earth every 30 days, leading to one month. And the earth revolves around the sun once a year.
Everything seems orderly…until it doesn’t.
When measuring the earth’s journey around the sun in days, things become less straightforward. A complete orbit takes 365 days plus an inconvenient extra 6 hours.
Yet, we don’t let these inconvenient hours disrupt our perception of order. Humans, being innovative, adapt the numbers to fit our needs. When faced with discrepancies, we find solutions; we create leap years, negative interest rates, and more. Continue reading
Public perception of the economy’s robustness is fading week by week. Politicians, central bankers, brokers, and even nightly news anchors can no longer uphold the facade that all is well. As the plot unfolds, it seems that no one remembers their lines.
Even the most cynical playwright couldn’t have scripted the rising support for Donald Trump and Bernie Sanders as presidential candidates. Yet here we are, during primaries adorned with ‘Feel the Bern’ bumper stickers like unexpected street art.
Economists had predicted that steady GDP growth of 3 percent, inflation of 2 percent, and 5 percent unemployment would usher in an age of prosperity. The origins of these metrics are often unclear, but what’s evident is that policymakers are struggling to achieve them.
Nonetheless, the broader public now understands that the promised happiness these metrics would bring is far from reality. Continue reading
Just when we thought we had seen everything, the unthinkable occurred. Earlier this week, Japan’s 10-year government bond slipped into negative territory, a feat accomplished through decades of aggressive intervention in credit markets.
On Tuesday, following a drop of over 5 percent in the Nikkei, the yield on Japan’s 10-year bond fell to a staggering minus 0.005 percent. This historic event marks the first instance of a G7 country reaching a negative yield on a decade-long bond. We find ourselves witnessing a truly remarkable moment.
A few years back, such depressed credit prices would have been deemed impossible. Who would willingly lend money knowing they would face a loss? Yet, astonishingly, what once seemed impossible is now our reality.
The long-term implications of a 10-year government bond with a negative yield remain uncertain, though the situation does raise questions. Will this enable the government to issue and purchase an unlimited amount of its own debt? Continue reading
