Former Federal Reserve Chairman Alan Greenspan made some rather ominous economic observations Sunday.
Appearing on CNN’s Fareed Zakaria GPS, Greenspan said, “[T]he level of uncertainty about the very long-term future is far greater than at any time I particularly remember.” He blamed it on “government intervention [that] has been so horrendous that businesses cannot basically decide what to do about the future” (video follows with transcript and commentary):
ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: There's no doubt that the very low long-term interest rates has had some buoying elements in the economy. The issue, however, goes beyond that because even though we have very major expansion of the balance sheets, it has not essentially spilled over in lending by commercial banks into the usual pattern that one sees when reserves go up.
FAREED ZAKARIA, HOST: So why aren't banks lending more? Because, you know, people I think who favor what the government is doing would say, well, they would lend even less if rates were higher. But what do you think fundamentally is at work here that companies in America are doing very well, they're not investing much. Banks are doing very well now, they’ve recovered, they're not lending.
GREENSPAN: First and most important issue to recognize in the United States – and it's a problem to an extent in other countries as well - is that the level of uncertainty about the very long-term future is far greater than at any time I particularly remember, and indeed…
ZAKARIA: Why is there more uncertainty now than there was in 1985 at the height of the Cold War? 1995 with the, you know, enormous changes in technology that were taking place? It doesn't, when I look at it today, it doesn't seem like it's more uncertain than those times.
GREENSPAN: It is.
ZAKARIA: Why?
GREENSPAN: It is, well, depending upon how you look at it, everyone agrees that it exists. There is a political difference of significant dimensions between people who believe that the extent of government intervention has been so horrendous that businesses cannot basically decide what to do about the future. For example, the percent of cash flow of business that is invested in any form of capital asset is that ratio two years ago was at the lowest level since 1938. It’s improved somewhat, but it is still extraordinarily low. And what we're observing there is with all this money coming in, all the profit, the cash flow, it cannot find adequate investments to use it.
Of course, this is what conservatives have been saying since the Democrats took over Congress in 2007 and the White House in 2009: excessive government intervention into the business world will cause business leaders to be squeamish about investing due to their fear of the future.
Needless to say folks such as Zakaria and his colleagues in the media don't agree.
That said, a few minutes later, Zakaria asked about Ben Bernanke’s likely successor:
ZAKARIA: One final question, I know you're not going to tell me what you think of Janet Yellen as a potential Fed chairman. But I'm going to ask you a slightly different question. Do you think it makes a difference in your long experience that she's a woman? You happen to be married to a very strong, professional working woman. Do you think men and women approach something like economic policy differently?
GREENSPAN: Not that I can determine. I, in fact, and Janet Yellen is a very good, an excellent economist, very intelligent. She knows exactly what is going on. I, I've worked with her for years. I learned a lot from her. Actually, she knows what's going on. She will do as well as anyone I can think can handle it. But there's a different type of problem that's going to be occurring. None of us has handled this before. She's as qualified as anyone I know to deal with it, and sufficiently knowledgeable with that extraordinary staff at the Federal Reserve to handle it.
I'd call that quite an endorsement, wouldn't you?
