"Zero Has No Meaning" Says Greenspan: I Disagree, So Does Gold


Negative yields? Who cares says Greenspan. It's meaningless.

Negative Yields "No Big Deal"

Former Fed Chair Alan Greenspan sees 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.

“There is international arbitrage going on in the bond market that is helping drive long-term Treasury yields lower,” Greenspan, who led the central bank from 1987 to 2006, said in a phone interview. “There is no barrier for U.S. Treasury yields going below zero. Zero has no meaning, beside being a certain level.”

Joachim Fels, global economic adviser at Pacific Investment Management Co., detailed earlier this month a view that there’s been a change in the fundamental economic theory of time preference that helps explain why people are buying debt with negative yields. He postulated that extended life expectancy and an aging population have caused people to value future consumption more than current spending.

Greenspan, 93, said he views Fels’s thesis as very plausible and also a reason why more debt has a yield below zero. He doesn’t think it will last forever.

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.”

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.”

Now it's "No Big Deal".

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 Time Preference

As noted above, Joachim Fels, global economic adviser at Pacific Investment Management Co, suggests "there’s been a change in the fundamental economic theory of time preference that helps explain why people are buying debt with negative yields."

Time preference can never be negative. Never.

To believe in negative time preference is to believe things such as "It's better to have 90 cents ten years from now than a dollar today".

Yields are negative only because central banks manipulated yields negative. They would never be negative on their own accord.

Investors buy negative yielding debt firmly convinced central banks will manipulate yields even more negative.

Zero Does Have Meaning

Alan Greenspan is wrong. Zero is very meaningful with negative being even more meaningful.

It means central banks have hit a brick wall. They cannot cram any more debt into the system. There is no tolerance for paying interest.

That's the meaning, and the evidence is overwhelming.

  1. More Currency Wars: Swiss Central Bank Poised to Cut Interest Rate to -1.0%
  2. Inverted Negative Yields in Germany and Negative Rate Mortgages.
  3. Fed Trapped in a Rate-Cutting Box: It's the Debt Stupid

As Gold Blasts Through $1500 the implied message is that central banks are out of control.

Gold has the meaning of zero correct even if central bank clowns and analysts don't.

Mike "Mish" Shedlock

Comments (66)
No. 1-25

Greenspan, a textbook example of a anachronism, is that guy still allowed to speak and does someone pay attention ? When I am 103, at the old people's home and in the dementia department most likely, I wont give a damn about 0% or even -50%(never say never), in the meantime however I would ve liked to enjoy a humble 3 or 4% on my savings, without having to run financial risks in a increasingly complex, deceptive, misleading and blatantly manipulated investment environment....


I had two thoughts reading this post.

(1) Who let this corpse speak?

(2) Contrary to the lies your econ professor told you, the US government has defaulted before and it will default again. Greenspan is just sending out a warning to the finance community to unload all that worthless "debt" onto the public before the default happens.

FDR defaulted on all US debt during the depression. For propoganda reasons, the media was told to call it a restructuring or gold devaluation. Whatever label one uses, debt holders got 50 cents on the dollar for the debt they had before the default.

Nixon defaulted on foreign holders of US debt (and indirectly on domestic holders) when he reneged on Bretton Woods valuations. It took a year or two of chaos to compute the damages, but roughly speaking debt holders got 50 cents on the dollar once again.

I don't want to exonerate Bush, Clinton or baby Bush (all helped making a mess) -- but Obama more than doubled government debt while GDP increased only ~33%, while spying on opposition parties, promoting corruption at all levels, and dramatically worsening racial relations. While Obama pretended to be running a tight ship, Trump is being a bit more "honest" (note the airquotes) in that he admits to running trillion dollar spending deficits. He hasn't done a thing to fix the problem, but he admits that there is a problem -- for whatever that is worth. It won't avoid the need (as in requirement) to default again.

No one in their right mind would buy debt from someone who is devaluing the debt as you are negotiating (e.g. buying Treasuries with yields below CPI yoy). But if the suckers.... I mean stupid public... I mean people who believe a massive debtor is going to run deflation...

If suckers are willing to buy debt that is depreciating as they submit their buy orders, the Treasury might as well fleece them for as much as possible


Pushing on a string?


"To believe in negative time preference is to believe things such as "It's better to have 90 cents ten years from now than a dollar today". Sadly it might be if shadow inflation gives you 25 cents on your dollar in ten years. A new f150 or a year of private college just might be chipping away at 95k. But just think of of how that new auto financing option of 240 months zero down is going to sound in car commercials.


Definitely a symptom of MMT going as far as it can possibly go. Without central banks buying everything they can get their hands on, there would be no negative yielding debt. There's no rational reason for it to exist.