Does Greenspan have a hidden agenda?

Alan Greenspan is still puzzled by the low level of long-term interest rates. In these remarks, published today, he goes over some of the hypotheses commonly mentioned: pension fund adjustments, Asian central bank purchases of U.S. bonds, expectations of an economic downturn and lower inflation expectations due to globalization. He finds them all wanting.

So, believe it or not, the world's foremost central banker doesn't know what factors are driving long-term rates lower. It seems rather absurd. He could've at least had the decency of offering his own ideas. This, in its way, is both revealing and suggestive.

My guess is that he's singalling in a very subtle way that long-term rates should be higher. I can think of two reasons (non-exclusive) for this.

First of all, given last Friday's weak employment numbers, many investors are expecting that short-term rates won't rise much more, if at all. If the Fed surprises by hiking them --or signalling to that end--more than expected, then all those people buying 10-year Treasuries at 3.9% are in for a very nasty shock, which may create instability (1994 all over again, only with a lot more leverage).

This scenario is not far-fetched. Richard Berner of Morgan Stanley argues here that the markets are underestimating the economy's strength and the that inflation will keep rising. He sees the Federal funds rate rising to 4%.

Alternatively, Greenspan may like rates to be higher to dampen some of the economy's flashpoints: the huge current account deficit, the real estate froth/bubble, some of the wilder hedge funds, etc. To a lesser or greater extent, all pose a significant risk.

If long-term rates don't rise significantly over the next few weeks, it's likely that the Maestro will be more explicit, perhaps even offering 'tentative' explanations to his 'conundrum'.