Alan Greenspan, speaking in South Korea, warned on Wednesday a global glut in liquidity would result in a fall in asset prices.
He said the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums.
“A good part of this expansion is a direct function of the decline in real equity premiums,” Greenspan said. “That cannot go on indefinitely.”
He said asset prices would begin to fall, but did not predict when that would happen.
“I am reasonably certain that what we are looking at today is an abnormal situation,” he said.
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