Too Late Smart

Greenspan is out and about, touting a new book. He seems to have discovered a few things a little late in life, somewhat to my amazement:

Gross domestic savings and capital investment as a share of GDP have declined significantly in recent years. It is the cause of the slowdown in productivity growth and standards of living. At root, the problem is government deficits suppressing the national savings rate. Until we come to grips with that, it is going to be difficult to get the economy moving in a sustainable way.

I do believe that central banks that believe they can quell bubbles are living in a state of unrealism.

I must comment that worrying about interest rate hikes unsettling markets is a waste of time. There are not going to be any interest rate hikes for a long time. It is worth reading the Hoisington letter for some realistic analysis of rate expectations…

… we expect that over the next several years U.S. thirty-year bond yields could decline into the range of 1.7% to 2.3%, which is where the thirty-year yields in the Japanese and German economies, respectively, currently stand.

My mark on the wall is actually 1.5-1.6% but I’m not going to argue decimals given the level of uncertainty. Markets will be unsettled by real interest rates, not nominal as a deflationary tsunami sweeps over the developed economies.

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