IRRATIONAL EXUBERANCE: Alan Greenspan warns of bubbles in bonds, stocks

One of the kings of bubbles thinks stocks and bonds are engulfed in bubbles.

Speaking in an interview with Bloomberg on Wednesday, former Federal Reserve Chair Alan Greenspan warned that investors are repeating themselves all over again with some good old-fashioned “irrational exuberance.”

You only need to look at the daily record highs in indexes and by some of the biggest stocks on the market to see bubbles forming. Meanwhile, yields on government notes and bonds are trading close to historic lows.

“At the end of the day, the bond market bubble will eventually be the critical issue, but for the short term it’s not too bad,” Greenspan said. “But we’re working, obviously, toward a major increase in long-term interest rates, and that has a very important impact, as you know, on the whole structure of the economy.”

A major concern for Greenspan is the ballooning budget deficit. With President Donald Trump slashing tax rates, the federal government will have a difficult time covering its expenses. It’s the Bush administration all over again: cut taxes but refuse to end the wars or cut spending.

“What’s behind the bubble? Well the fact, that, essentially, we’re beginning to run an ever-larger government deficit,” Greenspan added.

When one of the chief architects of the economic collapse starts to lose sleep at night over bubbles, then you know the economy is going to experience something worse than the Great Recession.

Here is the full interview:

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