World Economy

Greenspan: Extended Negative Rates Warp Investment

Greenspan: Extended Negative Rates Warp InvestmentGreenspan: Extended Negative Rates Warp Investment

Former Federal Reserve Chairman Alan Greenspan said negative interest rates, if pursued for an extended period of time, will eventually distort saving and investment.

“I wouldn’t say dangerous, but it is clearly not productive,” Greenspan, who left the Fed in 2006 after almost 20 years at its helm, said Monday in an interview with Bloomberg Radio and Television. “The big argument about excessively low interest rates for a very long period of time is that it warps the investment pattern on real investments”, Bloomberg reported.

Central banks in the euro zone, Switzerland, Sweden, Denmark and Japan have all pushed some key interest rates negative in recent years in efforts to stimulate growth and inflation. Policy makers in the US lifted their benchmark rate in December after leaving it near zero for seven years.

Greenspan, who turns 90 on March 6, said he’s not optimistic about growth in the US or globally, largely because business investment is so low, undermining companies’ ability to be more productive. “We’re in trouble basically because productivity is dead in the water,” he said. “Real capital investment is way below average. Why? Because business people are very uncertain about the future.”

Greenspan, who heads his own firm, Greenspan Associates LLC in Washington, blamed excessive regulation for limiting lending, and government entitlement programs for crowding out investment. Entitlements generally refer to social-welfare programs for the disabled, retired and poor.