Greenspan: a bit of doom, maybe
Posted on September 28, 2007 by Richard Beddard
Filed Under Markets |
That’s the good news. The bad news (he’s been emailing Gordon Brown about it), is inflation:
I’m not arguing inflation is about to emerge right now. I was referring more to the longer term. The notions that I raise in my book focus on the year 2030. I’m not really able to pinpoint the time but I’m reasonably confident that the inflation tranquility that we have experienced throughout the world, actually, for the last twenty years is not something we can hope to readily replicate as we move into the future.
The end of the cold war created a fundamental shift in the way the World’s economy was run, moving away from central planning towards market based capitalism. The effect was huge growth, especially in the developing world, in income and savings and this has driven real long-term interest rates down very considerably and spawned stock-market bubbles, residential housing price bubbles, all forms of real estate bubbles… It’s really not something which central banks any longer have control over.
Shorter term he says the danger of recession is less than 50%, which is less optimistic than he’d like, but not apocalyptic. Despite John’s legendary persistence on the chances of a house price crash, he can’t get much more out of him than that:
First of all remember that prices began to weaken, as I recall, in 2004 in the United Kingdom, and then the price decline aborted. We don’t fully understand why those types of things happen. Economist make judgements about everything… All you can basically know is whether probabilities are increasing or decreasing. We have no capability of looking into the future and knowing for certain, that certain things are going to happen.
As the general perception is house prices can’t go on rising, and a fair degree of gloom is already priced into the market, Greenspan’s views are more reason for short-term optimism, and long-term caution, I think.
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4 Responses to “Greenspan: a bit of doom, maybe”
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Serios inflation sometime before 2030? Yes, well, I could have told him that, and I’m not responsible for the economic stability of the western world, am I?
Its depressing really, the way, with all these brilliant minds at our disposal, we still can’t figure out what we are doing, and how we are doing it.
Personally, over the next six months I intend to cash all my investments outside ISas and SIPPs and pay the mortgage off. Then I will wait for the property auctions. I dont expect a crash, but I do expect the buy-to-let landlords (aka suckers) who came too late to the game to realise they are on a losing wicket. Also some of the early ones whose income does cover their outgoings, who find that they are losing 10% a year of their capital.
After the property slide will come the inflation, as our economies inflate their way out of debt. No use whining about it, its better than the alternative, which is a 1930s style slump. I suspect US inflation will go very high indeed.
Of course, Ken Fisher might not agree, but I notice he is not committing himself to a view beyond Autumn.
Hi Angela, nice to hear from you again
I was surprised by the 2030 time frame. I don’t find it depressing though. I think Greenspan’s vagueness, and the way he describes things in terms of probabilities demonstrates how uncertain economics is. That tells me two things, not to worry too much about it, and not to act on economic predictions. I’m interested, but it doesn’t define my investments. I’m more interested (but still detached from) Ken Fisher’s predictions because they are, at least stockmarket, predictions. Incidentally he’s bullish on 2008 too.
I read his article in Money Observer. He is a great antidote to the Bears is’nt he?
You don’t want to read it there!!!
He is, and I’d give his view more weight at the moment for two reasons. First he’s been right(so far) and second it’s a minority view, so it’s particularly useful in a stampede.