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Wednesday, April 12, 2006

Greenspan: Asset Prices Will Fall

This warning will get some attention. Alan Greenspan says the rise in asset prices in recent years has been driven by a fall in real interest rates, a situation that is abnormal and unsustainable. Eventually asset prices will fall back to normal levels:

Greenspan warns on global asset price fall, Financial Times/Reuters: Former Federal Reserve Chairman Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset prices. Greenspan, speaking to a financial conference in Seoul via satellite, ... said the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums.

“A good part of this expansion is a direct function of the decline in real equity premiums,” Greenspan said. “That cannot go on indefinitely.” He said asset prices would begin to fall, but did not predict when that would happen. “I am reasonably certain that what we are looking at today is an abnormal situation,” he said...

Greenspan also said that "global economic imbalances might improve if some high-growth economies allowed their currencies to strengthen." See this Washington Post story. Note: The Financial Times story (free) has been updated to include Greenspan's comments on Asian currencies.

    Posted by on Wednesday, April 12, 2006 at 12:34 AM in Economics, International Finance, Monetary Policy | Permalink  TrackBack (0)  Comments (52)

          

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