Greenspan Says the US is in a Stock Market Bubble

Published on: 02 Feb, 2018

Alan Greenspan, the former chairman of the Federal Reserve, said that there exists two bubbles- the bond market bubble and the stock market bubble. He warned that the bond market bubble, although benign in the short-term, could turn fatal for the US economy in the longer-term. He has earlier expressed doubts about the US economy under the Trump administration; he is openly critical of the present President's economic roadmap.

Greenspan's doubts about the bond markets are not new. He mentioned bonds being in a bubble in July 2017 itself. The prices of bonds have reduced by then- at the cost of the stock market. The Dow went up about 4,000 points from the middle of summer 2017. The stocks went down a little during the last week of January 2018. The Dow dipped sharply- the most since September 2016.

Greenspan is known as a fiscal conservative. This notion came from his years as the head of the Federal Reserve. He famously described the 1990s dotcom boom as “irrational exuberance”. The memorable US phrase proved to be correct after a few years. The effect was devastating. The Nasdaq could only make gains like before from 2000. Greenspan's capability is well known. He was so good at his job that both Democratic and GOP presidents appointed him to lead the Federal Reserve.

Greenspan has earlier expressed surprise that the State of the Union speech has not made any overtures to fund new initiatives. He said that the tax overhaul by the Trump administration will only add to the federal deficit. He has termed the overhaul a huge mistake. The former Federal Reserve head has no admiration for Trump's infrastructure spends either. When a reporter asked him about the Republican Party's policy of fiscal frugality, Greenspan shot back, asking the reporter to tell him the answer when he [the reporter] himself got to know. The ex-chairman said the spending of the government on social safety nets and new programs could lead to an overblown budget. This will lead to a rise in the interest rates. Inflation will accelerate as a result. He warned of an impending stagflation.

When it comes to stocks, a number of reasons exist as to why they are going up. The American economy at present is a healthy one. The world economy is advancing at a fast clip. Profits from corporations have only grown. This is due to the substantial boost from the tax cut which the Trump administration made for the benefit of companies.


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Danny Abramov



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