Good Reason to Expect Recession: Greenspan Doesn't

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Former Fed Chairman Alan Greenspan just provided a sound reason to expect a recession sooner rather than later.

Wrong Way Greenspan

If you weren't worrying about recession before, former Fed Chair "Wrong Way" maestro Alan Greenspan just provided one: Greenspan Sees No Recession as Post-Crisis Deleveraging Endures.

“The economy has been weakening, but we’re still in a period of deleveraging,” Greenspan said in a recent interview. His office reaffirmed his outlook on Wednesday. “No recession in the last half century, at least, began from a period of deleveraging.”

Spectacular Contrarian History

Greenspan has a spectacular history of being wrong.

Interest Rate Flashback July 31, 2017

Alan Greenspan told Bloomberg TV : "By any measure, real long-term interest rates are much too low and therefore unsustainable. When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.”

Bond Bubble Flashback August 4, 2017

Please consider Bubblicious Debate: Greenspan Says “Bond Bubble About to Break”, No Stock Market Bubble

In a CNBC interview, the longtime central bank chief said the prolonged period of low interest rates is about to end and, with it, a bull market in fixed income that has lasted more than three decades.
“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,” Greenspan said on “Squawk Box.”

Alan Greenspan on "Irrational Exuberance"

On December 5, 1996 the Maestro warned of "Irrational Exuberance".

Click on the link for an amusing video.

By the year 2000 Alan Greenspan embraced the "productivity miracle" of technology and no longer saw any bubbles.

That's precisely when the technology bust started.

Negative Yields "No Big Deal"

On August 13, 2019, Greenspan said No Barriers to Prevent Negative Treasury Yields.

Former Federal Reserve Chairman Alan Greenspan says he wouldn’t be surprised if U.S. bond yields turn negative. And if they do, it’s not that big of a deal.

Curiously, we had a bubble with interest rates well north of 2% but now 0% would not be surprising.

Negative Interest Rates Are Social Political Poison

Greenspan's timing on negative rates is particularly noteworthy.

Effective Lower Bound

For discussion of why the effective lower bound of interest rates may be much higher than zero, please see In Search of the Effective Lower Bound.

Just as Sweden and others are questioning negative rates, Greenspan embraced them.

Well done Maestro!

And thanks for the heads up on a recession.

Mike "Mish" Shedlock

Comments (91)
No. 1-19
Country Bob
Country Bob

In the 1970s USA, Detroit (car executives or UAW) could not fathom the idea that Americans wouldn't just put up with crappy cars at sky high prices. Toyota and Honda wiped the floor with GM's smugness, and despite multiple bailouts GM never truly recovered.

Today, Washington DC (politicians and bureaucrats) cannot fathom the idea that Americans won't just put up with crappy public services and sky high taxes. That arrogance is why Trump won (Trump will say it was his genius or something, but the same thing is happening all over the G7).

History doesn't repeat, but it rhymes. There will be a massive recession in government. I don't imagine the bureaucrats will go any more willingly than the UAW did, but it will happen in spite of them because big government has failed everywhere.

Only a fool believes in government run health care (without massive oil royalties), or government actually fixing roads, or government actually doing much of anything efficiently. Only a fool believes the welfare department or rent control is going to "solve" wealth inequality. And if you are a banker, you have to be smoking some serious drugs to think the central banks (ECB, Fed or BoJ) are going to solve anything at all.

Recession in government is coming. The private sector will boom as consumers look for alternatives to government "service"

Harry-Ireland
Harry-Ireland

By the way, one of Greenspan's counterparts, the former president of the Dutch CB (DNB) Nout Wellink said 2 months ago, a recession is inevitable and is a natural phenomenon. He sees one within 6 months. He's also one of the few to speak out against the QE madness. Greenspan has lost touch with reality or he's deliberately trying to maintain the facade that everything is glorious. You decide for yourself which is more likely.

Bam_Man
Bam_Man

Need I remind everyone of what a colossal failure Greenspan was in private business? He only got involved in "government service" after his economic forecasting firm had lost its last client back in the late 1970's. Needless to say, his forecasting record remains consistently bad to this day.

compsult
compsult

An excellent take down of the man who one day will be known as the Great Fool of the 20th century. Had he not gutted interest rates, housing bubble 1 would not have happened. History will see him for what he was - overconfident in his illogical views and the man who started it all with the massive mispricing of credit

shamrock
shamrock

Anyone not expecting recession has been right for 11 straight years. That's a pretty good track record.

ksdude69
ksdude69

Negative rates just buy the clowns in charge time to figure out what to do next and ensure that whatever it is, they are in charge of it. The money is no good, but somehow they are still filthy rich and at the top of everything somehow.

FromBrussels
FromBrussels

.....with senile regards from the dementia department . A.G

Tengen
Tengen

Things must be bad to bring this old ghoul out of mothballs. Does Greenspan have any credibility left in this country?

May as well make Bernanke and Yellen mumble "no recession ahead" statements too while we're at it.

Jackula
Jackula

50 years from now I think he'll be seen as one of the architects of the financial collapse of the American empire.

caradoc-again
caradoc-again

Why can't people just shut-up and retire.

Maximus_Minimus
Maximus_Minimus

I sense that bringing Greenspan into the discussion is like waving a red cloth in front of a bull. Now, why is that?

Greggg
Greggg

Dylan Ratigan (On Jimmy Dore Show) talks about Fed repos, Dodd-Frank and what Rahm Emanual explained to the Democratic Caucus before they cast their votes passing the bill. Congress will never have to pass a bail out bill ever again... It's automatic now. Start @ 2:50: https://www.youtube.com/watch?v=XRQecD-Gopg

Casual_Observer
Casual_Observer

Still dont see a recession in the textbook definition. We will hover around 1% growth on average with not much standard deviation. Few people have thought about the possibility of slow growth and slow deflation over a decade rather than a bust and boom cycle.

Roger_Ramjet
Roger_Ramjet

The US just added $1 trillion of new debt since August 1st, consumer credit is at an all time high, there is $1.5 trillion of student loan debt which grows higher with each passing semester, and corporate debt, used primarily to repurchase shares, is at its highest relative to GDP ever.

Now, exactly what deleveraging does the Maestro see out there?

Realist
Realist

There are a few of us who comment here that disagree with the “imminent recession” crowd. Casual Observer agrees with the slow growth scenario that I have been suggesting for the last 4 years. I know there are a couple of other commenters who agree, and I apologize to them, but I don’t keep close track of every person who comments here, so I won’t try to name them.

The reality that exists in the world today does not come from textbooks, elaborate theories, or political ideology (left or right). It is merely the result of those in charge of running governments, central banks, commercial banks, pensions, corporations etc trying to react to the reality they face as individuals (not as some group of conspirators) in order to keep their particular institution moving forward while avoiding crisis.

Take Trump. He has no “long term plan”. He reacts every 5 minutes to whatever he sees (half of which comes from foreign players trying to manipulate him). He changes his mind and does “180s” so often that you would have to be a fool to think he has some kind of plan or strategy.

Like so many others in charge he is simply trying to keep “all the balls in the air” and he doesn’t really care how he accomplishes that trick as long as he does it. He will use tactics from the political left or right, cozy up to dictators and enemies of the US, shit all over his allies, demean any group that suits his purpose, run up the deficit, cut taxes, spend like a drunken sailor etc etc just to keep thing going. His political supporters will twist themselves into pretzels as they also do “180s” on many topics such as government spending, government deficits, the debt, interfering in other countries etc.

The result of all this short term crisis management is that everyone in charge is just trying to “keep things going”. Oddly this appears to work over the long term. Japan has been doing it for three decades. Most other developed countries have been doing this for three decades as well with only the occasional hiccup like 2007.

Everyone is getting better and better at “keeping the balls in the air”, no matter what the cost is down the road. This short term thinking will hurt us in the long run, but keep us going for now.

Almost everyone who comments here realizes that we are receiving short term gain for long term pain. What we don’t agree on is when will the pain hit, and what form will it take?

Casual, myself and a few others simply think that those in charge will be able to keep this going for a long time. That a recession is not imminent.

To over simplify things, I personally believe that we are merely sucking all future growth into the present. The long term pain is going to eventually be zero growth for a very long time.

Catastrophes are always possible if someone drops a ball. But trying to guess when the next ball drops and thinking you know when that is going to happen is very very difficult.

Realist
Realist

In addition, this is the same issue with the problem of global warming. Among those governments and institutions who do understand the science and it’s long term implications, they are still unable to make long term plans to battle this problem, because they can’t get past the short term thinking that is so pervasive today. It’s easier to let future generations take the pain, than the present generation.

Christian dk
Christian dk

WHAT office, does Greenspan now have to support this jibberish. ?? Is he STILL on the pay roll of the printing press/FED or just a "consultent" of some non think tank ?

TumblingDice
TumblingDice

As long as the Fed and other economists can keep people convinced inflation is low (0 - 2%) the game will continue. This satisfies both creditors and debtors. However, creditors don't realize their money is worth less than before all the money printing. Debtor's think this is good as their debts don't grow as fast. Once again if they are lucky enough to get out of debt, their money buys less than before.

In some ways, I guess this is the only solution for creditors loaning money (w/o concern if it will be paid back) to debtors (figuring if someone wants to loan me money, I can pay it back), when in reality the debtor is tapped out.