This is a very convenient moment to put up this post. Alan Greenspan has just admitted that he’s human like the rest of us, and that he doesn’t have a very good explanation for why long-term interest rates have been falling at a time when he and his Fed colleagues have been busy raising short-term rates. I think he’s being a bit coy here, since I’m sure he has some idea. Among other things he will be well aware of the contents of a speech made recently by Ben Bernanke, a US economist who is considered high on the list of possible Greenspan successors.
What Bernanke said in the speech ( The Global Savings Glut ) was this:
“Iwill argue that over the past decade a combination of diverse forces has created a significant increase in the global supply of saving–a global saving glut–which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today. The prospect of dramatic increases in the ratio of retirees to workers in a number of major industrial economies is one important reason for the high level of global saving.”