Negative Interest Rates Are A Big Deal And Threaten The Financial System, Says Former Fed Chair Alan Greenspan

Kevin Mwanza
Written by Kevin Mwanza
negative interest rates
Former U.S. Federal Reserve chairman Alan Greenspan says it’s ‘only a matter of time’ before negative interest rates spread to the U.S. | Image: By Autumn Keiko

It would not be a surprise if yields on U.S. bonds turn negative, according to Former Federal Reserve chairman Alan Greenspan, but pundits say the widely-held sentiment that negative interest rates are not “that big of a deal” is wrong.

Greenspan said “zero has no meaning” and went on to explain that low yields in the U.S. are partly an effect of international arbitrage, but “may also be due to forces having altered people’s time preferences”.

Negative interest rates could be a warning

The possibility of negative interest rates has been a cause for concern for investors in U.S. Treasury securities and could be a warning sign of potential problems for the economy.

The yield curve – a trusted recession indicator through history – has been inverted for months, but some investors interviewed by Market Insider said they are more worried about the growing mountain of negative-yielding debt.

“You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States,” Greenspan told CNBC, adding that investors should watch the 30-year treasury yield.

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There is more than $16 trillion in negative-yielding debt instruments around the world as central banks try to ease monetary conditions to sustain the global economy.