A Conversation with Alan Greenspan
Former Fed Chairman and ACM Senior Economic advisor Alan Greenspan was badly misquoted yesterday. In an interview to promote his latest book, Greenspan responded to a wide range of questions and indicated he remains concerned about the economy’s long-term prospects, because of the increase in entitlements financed by growing budget deficits. But when I followed up with a phone call to find out if investors should run for the hills, he immediately responded he was misquoted. He does not see a recession in the near future and doesn’t even see signs of recession.
The headline quote that was used to capture readers suggested that Greenspan recommended that investors “run for cover.” But you had to dig into the article to discover that Greenspan didn’t present that view as applying to the market today or even in the visible future. In fact, the article indicated Greenspan thought the stock market was volatile, which was just human nature, and the market could still go higher. “At the end of that run, run for cover.” But even in that context, the quote was misleading.
Greenspan’s underlying concern remains that entitlement spending is too high and it is being funded with deficits, which in the long-run, will be problematical for the economy and produce stagflation. This is a long standing view of his, which he has expressed numerous times in public, at private ACM events, and in private conversations with me. But he doesn’t think a day of reckoning is imminent. Of course, he would like to see the government address these issues before they become a problem. In his view, “Stagflation is a real problem, but until inflation increases, the public doesn’t care and it may be a while off.” This has been Greenspan’s theme for some years now.
Notably, Greenspan stated quite explicitly to me that “I’m not calling for a recession” and “There are no signs of recession.” Just as importantly, “The stock market is not at considerable risk.” He sees the market decline and attributes that, at least in part, to the rise in real interest rates. I agree and see PTSD from 2008 as another key factor, which is just another way of expressing Greenspan’s view that the human nature of investors makes stocks volatile.
Greenspan is speaking publicly quite often these days because he is actively promoting his book and it is helpful to do media interviews. But the people he speaks to have their own agendas and they can use his statements misleadingly. That is the plight of all public figures. Just a few weeks ago, Fed Chair Jay Powell stated that policy today is not far from the lowest estimate of a wide range of estimates of a neutral monetary policy. Some media coverage twisted that statement to suggest policy is already at neutral or that the policy rate hikes were almost done. Much of the media coverage was either sloppy or intentionally misleading. That is why Fed policymakers must be extremely careful about what they say, and even then, their comments may be misconstrued.
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