Greenspan on the Economy: Political Capital (11/29)

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Nov. 22 (Bloomberg) -- This week’s “Political Capital” features former Fed Chairman Alan Greenspan discussing the economy and the markets with host Al Hunt. (Source: Bloomberg)

Like this week, alan greenspan talks about the economy and markets.

Nfl players association executive director on violence in the nfl and bloomberg view columnist jeffrey goldberg breaks down obama's iran nuke deal.

We begin the program with former federal reserve chairman and author of this book, "the map in the territory," alan greenspan.

We will talk about this in a moment.

The general forecast for economic growth is about 2.5%- 3%. there's no doubt that there has been some acceleration going on, but there is an overall suppression that's going on in the economy largely because we have a very heavy overhang of uncertainty.

Closer to 2%? probably.

Some economists believe that not only is that a problem with the overhang and uncertainty but the aftereffect of the financial crisis are not more permanent what long lasting.

We will not have the 4% growth for the foreseeable future and we will be stuck around 2%. are you one of those pessimist?

I am.

There should be a big dispute as to what causes it.

The degree of uncertainty that is being engendered irrespective whether it is a political cause or nonpolitical is creating significant reduction in the so- called active investments and it has been down.

That is where all of our problem rests.

Wall street and too big to fail.

The four biggest banks today are 30% larger than they were in 2008. does that concern you?

Sure does.

What can we do?

Basically, to put up the capital requirements.

We are having inadequate capital land until we solve that problem, we are going to have major problems with the banking or.

And some of your comments, you have toyed with maybe the idea that we should think about breaking banks up as they get too big to fail.

Jpmorgan has eight suits against it on everything from bribery to mortgage fraud.

Should we think about breaking up jpmorgan?

You are asking the wrong person.

I was on their board for 10 years.

I am unclear as to the nature of the allegations are.

All i can tell you is that when i was there, the major concern of the bank was to maintain its aaa status and reputation.

It has not significantly changed.

Has it gotten so big that it would be better off if it were broken up?

The issue rests not so much with the issue of size but the question of size and inefficiency.

What the too big to fail issue is is that we are supporting banking institutions who are not only very large but not very efficient and they are using the scarce savings of a society which is critical to economic growth.

You are worried that some banks will not be, i gather by your earlier comments.

In your book, after a lot of vigorous self, uses the market is sometimes less rational.

What are the implications for policymakers?

Should the fed tried to poke the asset bubbles with interest rates?

A quick history but i think it's important.

We used to have inventory cycles which were easily handled but did not cause instability.

We had a major improvement basically shortening the leadtimes on deliveries.

Inventory levels were kept substantially reduced.

The result of that as we do not have major inventory cycles anymore.

Because we do not have major inventory cycles, you get you for you in the economy and what happens is the inevitable result of the bubbles.

Let me talk about euphoria.

The stock market is going gangbusters.

16,000 on the dow.

1800 on the s&p 500. do you think there is some irrational exuberance?

The stock price generally goes up 7% per year over the long term and it did not go anywhere from october 2007. the result of that as we are just now reaching that.

We have had no growth in the stock prices for years.

The result of that is that the valuation of stocks was extraordinarily undervalued.

This is a return to normalcy as opposed to a stock market bubble?

Correct.

This does not have the characteristics, as far as i'm concerned, of a stock market bubble.

Pope francis this week in a new excerpt called on public officials to reject trickle-down economics, his words, and reject what he calls the absolute autonomy of market and financial speculation and to focus more on the problems of inequality.

Does the pope avenue appoint?

-- does the pope have a point?

I would just assume not to discuss that issue.

I don't think that's appropriate.

Ok, let's talk about it generically.

You have worried about income inequality in the past.

Cutting spending, cutting entitlements, this would exacerbate that even more.

Let me put it to you this way.

I am for cutting benefits provided that we fund them.

Essentially, we are under funding our various entitlements and the entitlements are such that unless they are funded -- remember, these are used for consumption.

They eat into the savings of the society.

What you think about the economic feasibility of a value- added tax that is not regressive?

The trouble with a value- added tax is that it has no limit.

Europe has accepted it.

Singapore, new zealand.

There are a lot of places.

It depends on the aggregate amount of taxation in the system.

I have no objection to raising taxes, but i do think that a value added tax is not in the american system.

We will find, in my judgment, we can do far better.

Janet yellen is almost certainly going to be confirmed as the new federal reserve chairman.

I know you do not talk about current fed policy, but what is the biggest challenge that will face janet yellen, who you have praised th?

I have praised her because she is very good o. what do you do when you essentially required to return to normal expansion or contraction in the balance sheet you?

Right now, they are still expanding the balance that will have to come to a halt.

Do you want to comment on that?

It's a critical issue.

Eventually, we're going to have to start bringing it in.

That process is going to move interest rates higher.

It is a very indeterminate amount and that is going to create major problems for the federal reserve, as it always has politically.

Dr.

greenspan, thank you for being with us.

When we return, the current state of the national football league.

The nfl player association executive director.

?

This text has been automatically generated. It may not be 100% accurate.

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