Former Federal Reserve Chairman Alan Greenspan warns savvy investors that he thinks the current bond-market bubble is nearing its end.
"We are in a bond market bubble" that's beginning to unwind, he recently told CNBC.
Bond "prices are too high," Greenspan added.
"As real long-term interest rates rise, stock prices fall," but that's probably not the cause of the wild market swings, Greenspan told CNBC.
"The last few weeks are responding to the good part of the tax cut," he says.
Greenspan says he's optimistic about growth in the near future because of sweeping Trump tax reform. However, he said his long-term view is "rather dismal" due to the "gradual encroachment of entitlement spending on gross domestic savings," which is defined as GDP minus total spending, CNBC explained.
Greenspan recently said 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.
(Newsmax wire services contributed to this report).
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