Last week former Federal Reserve Chairman Alan Greenspan, a.k.a. “The Maestro” warned of a massive bubble in the bond market. Makes you wonder if we are nearing the point where the insanity ends, when even a former Federal Reserve Chairman is acknowledging that years of 0% interest rates have set the dollar up for a day of reckoning.
Greenspan is a curious figure in financial history to be sure. Back in the 1960’s he was close with Libertarian author Ayn Rand, based on their shared belief in a gold standard. Oddly the Maestro completely changed his tune (sorry…. couldn’t resist that one….pretty punny, right?) during his tenure as Fed Chairman, when Greenspan’s own low interest rate policy was the primary driver of the last credit fueled housing bubble.
Now following 8 years of low interest rates under Ben Bernanke and Janet Yellin, Greenspan had the following comments.
The current level of interest rates is abnormally low and there’s only one direction in which they can go, and when they start they will be rather rapid.
I have a chart which goes back to the 1800s and I can tell you that this particular period sticks out. But you have no way of knowing in advance when it will actually trigger.
“It looks stronger just before it isn’t stronger,” he said. Anyone who thinks they can forecast when the bubble will break is “in for a disastrous” experience.”
Why Greenspan is out making these comments now, or why he couldn’t see this when he was the Federal Reserve chair is anyone’s guess. Despite that, he is most certainly right about what he’s saying.
The bond market has become the biggest bubble in history, and I do not believe that the Fed has an exit plan. If they do, there are a lot of market participants who would sure like to know what it is.
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