Alan Greenspan: bearish on global growth

published 21 April 2017

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.

This mix of low productivity and loose monetary policy is unlikely to end well. Rising prices plus weak growth add up to "stagflation", warns Greenspan, who thinks there is a good chance that we could see a repeat of the situation in the 1980s, when another former Fed governor, Paul Volcker, was forced to hike "the Federal Funds rate to 20%". So he's sticking with his advice to buy gold "one of the only currencies that has an intrinsic value".

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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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