Tags: Alan Greenspan | Tim Geithner | Janet Yellen | Robert Shiller

Greenspan Sees Another 'Taper Tantrum'; Geithner Predicts Another Crisis

By    |   Thursday, 14 May 2015 07:56 AM

In recent articles this writer has suggested that much as the bond market spiked back in May 2013 over the mere hint that the Fed was about to raise interest rates, another spike could occur at any time if elements in the market who doubt that the Fed will act suddenly become convinced.

The implication is that the Fed cannot deliver the smooth adjustment it has promised, because markets have become addicted to accommodation and the Fed has already waited too long to act.

Strangely, the first clip shows a comment by Gina Sanchez, CEO of Chantico Global, that an increase in rates could be “ugly” or benign, depending on whether it is accompanied by evidence of growth in the U.S. economy and corporate earnings.

Below the clip is a report by Lawrence Delevingne, of CNBC, of a speech Wednesday by former Fed Chairman Alan Greenspan to the Global Private Equity Conference in Washington warning of another “taper tantrum” and adding, “This is a very rough period to get through. Normalization is great, but the process of getting there is going to be very rocky.”

In the next clip, former Treasury Secretary Tim Geithner speaks to CNBC’s Steve Liesman about his book “Stress Test” and explains that there will be another crisis episode accompanied by another bailout “because only the Fed can step in and take risks that the markets can’t take.”

This writer’s view is that markets and the economy are repeatedly punished because of the failure of policy makers and regulators to limit the exposure of the economy to risks posed by the large, poorly capitalized banks whose managers know they have the backing of the federal government. Nothing has ever been done to disrupt this pattern of behavior.

In the third clip, Yale economist and Nobel laureate Robert Shiller recalls with CNBC’s Rick Santelli Greenspan’s famous “irrational exuberance” warning of 1996. Shiller called it an “offhand remark,” but today Shiller says of Fed chairs, “It’s part of their job to disturb the tranquility, and I praise Janet Yellen for doing that.”

Santelli asks Shiller why the Fed doesn’t use its power to change margin requirements as a means of checking the excess liquidity it has provided to markets.

Shiller responds that there would be “so many other ramifications” from such an action, and he finds that the Fed was right to institute QE, contributing to booms in the housing and stock markets: “We were close to a depression, and we had to do something.” This writer would point out that if the Fed had fulfilled its responsibilities as a bank regulator, if it had done that job, there would be no excuse for all of the extraordinary measures that have benefited Wall Street at the expense of the economy.

Finally, a contrary view comes from Puru Saxena, CEO of Puru Saxena Wealth Management, who seems to represent the prevailing Wall Street view that prolonged low interest rates are good for markets and that stocks, while not cheap, “are not in bubble territory just yet.”

The point of this discussion is that it illustrates why the Fed has probably already waited too long to raise rates and is unlikely to act, in spite of Yellen’s tepid warning that stocks are overvalued.

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Robert-Feinberg
In recent articles this writer has suggested that much as the bond market spiked back in May 2013 over the mere hint that the Fed was about to raise interest rates, another spike could occur at any time if elements in the market who doubt that the Fed will act suddenly...
Alan Greenspan, Tim Geithner, Janet Yellen, Robert Shiller
544
2015-56-14
Thursday, 14 May 2015 07:56 AM
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