Alan Greenspan: bearish on global growth
Inflation is a threat to global growth, reckons former Fed chief Alan Greenspan.
Former Federal Reserve chairman Alan Greenspan is bearish. "We have been through a protracted period of stagnant productivity growth, particularly in the developed world, driven largely by the ageing of the baby-boom' generation." Rising welfare benefits for the elderly "are crowding out gross domestic savings, the primary source for funding investment". Falling investment has hit productivity output per hour over the past five years has grown by about 0.5% a year, compared with near-2% previously. This has "provoked despair" and the "rise in economic populism".
Greenspan is particularly worried about inflation. "In the US, the unemployment rate is below 5%, which has put upward pressure on wages and unit costs generally." At the same time, "demand is picking up, as manifested by the recent marked, broad increase in the money supply, which is stoking inflationary pressures". Wage hikes so far "have largely been absorbed by employers", but "prices ultimately have to follow suit". Monetary policies may also be fuelling the problem, especially in Europe, where the European Central Bank's balance sheet has grown steadily in recent years.
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