• 260 days Will The ECB Continue To Hike Rates?
  • 260 days Forbes: Aramco Remains Largest Company In The Middle East
  • 262 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 661 days Could Crypto Overtake Traditional Investment?
  • 666 days Americans Still Quitting Jobs At Record Pace
  • 668 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 671 days Is The Dollar Too Strong?
  • 672 days Big Tech Disappoints Investors on Earnings Calls
  • 672 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 674 days China Is Quietly Trying To Distance Itself From Russia
  • 674 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 678 days Crypto Investors Won Big In 2021
  • 679 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 679 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 682 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 682 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 685 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 686 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 686 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 688 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Greenspan Foresees 5% Interest Rates: 'Only One Long-Term Direction and That is Up'

In a Bloomberg Interview, former Fed chairman Alan Greenspan says "fairly soon" we could see a shift away from excessively low interest rates.


Greenspan Quotes

  1. We could see a shift away from excessively low interest rates "fairly soon".

  2. "I think up in the area of 3 to 4, or 5 percent, eventually. That's what rates have been historically, not only for hundreds of years, but thousands of years."

  3. "We're moving into the very early stages of inflation acceleration. That could be the trigger. There is only one long-term direction in interest rates and that is up."

  4. "It's a problem, as in going from where we are now to 4 or 5 percent. There's a whole structure of adjustments which have taken place, basically since 2008, which have to be unwound, and that's not going to be done without a problem."

  5. If you listen to the debates and the primaries, nobody is addressing the fundamental issues that need to be addressed. Entitlements are rising and choking off gross domestic savings, and ultimately gross, domestic investment. And it's the major cause of the reason why output per hour and productivity were so flat, not only in the United States, but throughout the developed world."


Greenspan Video


No Savings Glut

Points five above is key. It's really about socialism and free handouts.

In contrast to the widely-held "saving glut" thesis of Ben Bernanke, Larry Summers, and others, Greenspan, for all his faults, understands savings are both necessary and have been crowded out.


Math for Greenspan

I rather doubt we get to 5% rates or even 2% rates "fairly soon". At an interest rate of 4%, interest on the national debt will soar as noted by Q&A: Everything You Need to Know About the National Debt.

The Congressional Budget Office projects the interest rate on ten-year Treasury bonds will climb from slightly over 2 percent today to over 4 percent by 2019. As a result, interest payments will more than triple from $250 billion in 2016 to more than $800 billion in 2026. By 2030, interest will represent over 14 percent of the federal budget and continue to climb. This represents money that cannot be spent on other government priorities such as education, national defense, research or infrastructure.


Interest Rate and Growth Projections

Interest Rate and Growth Projections

We are already crowding out savings at a mere 0.50% interest rate. That problem will more than triple by 2026 according to the CBO. Unfortunately, that is an extremely optimistic projection.

Mish Tweet

It's equally save to presume GDP will grow much slower than projected over the next 10 years.

Lacy Hunt at Hoisington Investment Management also understands the effect of debt on the economy and interest rates. For discussion, please see Negative Multiplier of Government Debt.

I suspect we may be in a bit of an inflation scare. For details, please see Is the Rise in Price Inflation Transitory?

 

Back to homepage

Leave a comment

Leave a comment