In an interview with CNN, former Chair of the Federal Reserve Alan Greenspan said that the stock market could still go higher but “At the end of that run, run for cover."
So, what are the factors Greenspan is taking into account and is the U.S. economy at risk? WGVU talks with Paul Isely, associate dean in the Seidman College of Business at Grand Valley State University.
“Alan Greenspan has been talking about some of these things for a while and he certainly was somebody who had to watch places like Japan go through their ‘Lost Decade’ and he’s seeing some of those same signals in the U.S. economy.”
What is Alan Greenspan, the former Chair of the Federal Reserve, trying to tell us?
“Well, he’s trying to tell us that we’re entering a period where growth is looking like it’s going to slow down. Demographics are bad. We’re not having as many new workers come in. Businesses aren’t investing at a rate that we would expect and the world economy is slowing down. And this is all happening at the same time that prices are starting to accelerate upwards. The combination of those things are bad for corporate profits which are bad for the stock market. It’s bad for consumers because it creates the type of situation we had in the 1970s here. So, that overall is a bad news.”
Does Isely see the same signs? Does he agree with Greenspan?
“I see many of the same signs. I think we know a lot more than we did in the 1970s. I think that we have hindsight to help us and I think that as we look at the U.S. economy now compared to then there are other drivers that are there. So, I think that yes we are susceptible to that type of problem, but I think there’s a good chance we could avoid it.”
Why does Isely think that?
“Because what we’re looking at right now is interest rate policies that likely are already starting to, to ease how many interest rate increases we’re looking at. We’re seeing Federal Reserve more in tuned with where the problems are at in the economy right now. And we don’t have weird things like weird shocks in the price of commodities right now. So, I think that we have a high probability of a recession starting in the next 18 months, but I don’t think that it’s going to reach a point where we have the problems that we saw in the 1970s.”