As an extension of the last post concerning bubbles, here are two of Alan Greenspan’s past comments that I find particularly relevant given our current environment:
This is from a September 26, 2005 speech he gave in which he speaks about how negative “shocks” may impact the economy. I find this quote interesting as it is an example of, among other things, how one can overlook the severity of embedded risks in a bubble environment:
“How significant and disruptive such adjustments turn out to be is an open question. Nonetheless, as I have pointed out in previous commentary, their economic effect will, to a large extent, depend on the flexibility inherent in our economy. In a highly flexible economy, such as the United States, shocks should be largely absorbed by changes in prices, interest rates, and exchange rates, rather than by wrenching declines in output and employment, a more likely outcome in a less flexible economy.”
This next quote is from his “The Crisis” paper, p. 45:
“‘…history has not dealt kindly with the aftermath of protracted periods of low risk premiums.'”
back to <home>
SPX at 1217.28 as this post is written