The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
April 12, 2006
Mr. Greenspan And The IMF Find Common Ground?
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.
... while Kash has this at Angry Bear:
WASHINGTON (MarketWatch) -- After several years of low interest rates and ample liquidity, storm clouds are developing over global financial markets, according to a new report from the International Monetary Fund.
Well, by definition higher interest rates mean lower bond prices, and I guess the idea is that, because an equity price is something like the discounted flow of future dividends, higher interest rates mean lower equity prices too.
Is this bad? Before you answer that question, the first thing to recognize is that interest rates are prices, and prices don't just magically change -- they rise or fall because demand and/or supply change. If interest rates are rising because global economic growth is strengthening and investment opportunities expanding, I'll have to put that in the good, or at least benign, category. (And note that higher interest rates do not mean that equity prices fall -- while higher interest rates mean a larger discount is applied to dividend or earnings flows, it is also the case that faster growth means those flows themselves increase.)
On the other hand, interest rates may rise, particularly in the United States, because global savers lose confidence in the dollar, or financial fragilities cause global production opportunities to contract. I'll put those types of rate increases in the bad, or at least not-so-good, category.
If I had to guess, I would put Mr. Greenspan closer to the good-to-benign story. From the (UK) Times Online:
Mr Greenspan said that the situation would end when the amount of excess capital dropped. “I don’t know when the liquidity is going to decline, but I am reasonably confident that what we have is an abnormal situation,” he said. His comments echoed his famous 1996 warning over “irrational exuberance” in markets. However, asked yesterday whether the same diagnosis applied to present conditions, he said: “I would hesitate to use it in today’s context. Irrational exuberance, I think, would be a stretch at this point.”
Comparing that savings-gluttish take with the "storm clouds" rhetoric of the IMF, I'm not quite sure Mr. G and the good folks at the IMF see quite the same picture just yet.
UPDATE: Kash suggests, in the here and now (as the 10-year Treasury yield finally breaches the 5 percent threshold), the "rise in rates reflects a belief that the economy will continue to remain strong through the rest of the year."
TrackBack URL for this entry:
Listed below are links to blogs that reference Mr. Greenspan And The IMF Find Common Ground?:
- Can Two Wrongs Make a Right?
- Are People in Middle-Wage Jobs Getting Bigger Raises?
- GDPNow and Then
- What's behind the Recent Uptick in Labor Force Participation?
- Is the Number of Stay-at-Home Dads Going Up or Down?
- Labor Force Participation: Aging Is Only Half of the Story
- Putting the MetLife Decision into an Economic Context
- The Rise of Shadow Banking in China
- Which Wage Growth Measure Best Indicates Slack in the Labor Market?
- Collateral Requirements and Nonbank Online Lenders: Evidence from the 2015 Small Business Credit Survey
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth