Former Federal Reserve Chairman Alan Greenspan says that President Donald Trump’s landmark corporate tax cut is driving the stock market and a host of economic benefits, and that “we’re underestimating the impact of that.”
Greenspan notes that when the tax rate is moved several percentage points, “a whole cascade of projects will fall on a ‘let’s-do-it’ type relationship, and I think that’s what’s happening at the moment.”
“Remember that the stock market is being driven to a large extent by the one thing that I think the Trump administration did right: got the 35 percent marginal corporate tax rate and brought it down to 21 percent,” Greenspan said during a recent discussion at the American Enterprise Institute titled, “The Bubble Economy – Is This Time Different?”
“I think that what is happening here in the United States is we’re underestimating the impact of that,” Greenspan said.
However, Greenspan expressed hesitation and worry about the financial markets. aside from the Trump tax cut.
“I’d argue that there’s both a stock bubble and an interest rate bubble — bond market bubble, I should say, at the time – and the bond market bubble is essentially the determining force because to reach equilibrium, it’s got to move, whereas all other aspects have a lot of fluctuation," said Greenspan, who served as Chairman of the Federal Reserve of the United States from 1987 to 2006.
"It is at its low— real interest rates are at their lowest levels of extremity and, by the definition, if you’re at your lowest levels, there’s only one direction you can go,” the economist said.
“But if that goes up, then it tends to alter the earnings-price ratio and would bring stock prices down, and that’s what’s happening,” he added. “I’m not going to go out there and be a stock market forecaster. But I know what the forces are, and it’s a question here of trying to determine which is the driving force,” he said.
Greenspan was asked how much trust the American people should place in U.S. financial institutions and the dollar.
“Depends on human nature. Obviously, trust is a critical aspect of finance. You couldn’t have any complex society where there’s – people are willing to trust somebody over a protracted period. I mean, we sell 30-year Treasury bonds. People are willing to hold it,” said Greenspan, who currently works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC.
“Well, why? Because they believe that even though they’re getting back fiat currency, they will get their currency back and so that you take trust out of a financial system and it collapses because it’s all based on interpersonal reactions,” he said.
Other economic experts have touted the benefit of the sweeping tax cut.
Investment guru Steve Forbes recently told Newsmax TV that Trump’s tax cuts will trigger economic growth of at least 3 percent to 3.5 percent.
For a decade, economic growth has usually been below 2 percent, Forbes said. “We've had a few quarters that would go above it or it'd gone 25 miles an hour in a 70 mile hour zone speed zone. Now we're going to get it up to 40, 45. Good start. And if the administration continues, Trump continues on deregulation and alike, good,” the chairman and editor-in-chief of Forbes Media told “The Income Generation Show.”
Forbes told host David Scranton he thinks the Trump tax cuts will solidify “a 3, 3 and a half percent growth economy.”
For his part, Trump has taken to Twitter to tout the economy, saying mainstream media outlets only distort the facts and report "fake news."
"The U.S. economy is looking very good, in my opinion, even better than anticipated. Companies are pouring back into our country, reversing the long term trend of leaving. The unemployment numbers are looking great, and Regulations & Taxes have been massively Cut! JOBS, JOBS, JOBS," Trump recently tweeted.
(Newsmax wire services contributed to this report).
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