Do Low Long Term Interest Rates Really Confuse Greenspan?

In Greenspan's testimony yesterday, he seemed to embraced the view most economists share today: that the world's long term interest rates are unexplicably low. Good for economist then; not even the guru can explain this, how could we? For instance, DeLong is happy to quote: "The Fed chief said it was hard to explain why long-term interest rates have declined in the face of the U.S. central bank's short-term rate increases." However, looking closer, Greenspan actually explains quite a lot of the world economies newly opened sources for capital which eases the need for funding over the capital market and lessens upward pressure on yields:

"There is little doubt that, with the breakup of the Soviet Union and the integration of China and India into the global trading market, more of the world's productive capacity is being tapped to satisfy global demands for goods and services. Concurrently, greater integration of financial markets has meant that a larger share of the world's pool of savings is being deployed in cross-border financing of investment."

he says. He hence seems more puzzled over the very last rally in bonds, not the since several year established low long term rates. He continues, sayint that:

"none of this is new and hence it is difficult to attribute the long-term interest rate declines of the last nine months to glacially increasing globalization."

Now the time has come to express a different opinion. Hasn't the continuing unbroken pace of the globalization surprised markets. Abolishing of textile quotas? China's growing demand for oil? Long term contracts for oil, the very same ones that Greenspan is referring to have become more than 50% more expensive in these "last nine months". Consider then that the increased need for crude oil comes from new industrial plants that China have built without net external funding. The case is actually that they simultaneously have build up new crude guzzling industries while simultanousely beeing increasingly larger net-exporters of capital! This nine month development clearly have surprised at least the oil market, and from that perspective it would be most appropriate to talk abot it as brand new, at least in a quantitative sense.

Greenspan concluded his speech talking about human capital, or "skill":

"workers will need to acquire the skills required to compete effectively for the new jobs that our economy will create. ...We need to reduce the relative excess of lesser-skilled workers and enhance the number of skilled workers by expediting the acquisition of skills by all students, both through formal education and on-the-job training."

This is of course most important, and also helps explain the low level of interest rate. While processes in Asia is adding human capital to the world market (at least implicitly so via their export markets), interest rates are as already mentioned pushed down through lower overall demand for capital. But as Greenspan points out, the return of human capital decreases, and the US worforce needs to add skills to keep its share of returns, to keep up its wages. Now, if workers leave factories for schools, they would need funding to cover for lost wages, putting upward pressure on interest-rates. However, in "on-the-job training", they may well be able to simulateously produce (and hence save), and invest in their own increased skill. Much the same way as China have managed to be net-exporters while rapidly builing up their own industry. I can only speak for myself, but I clearly didn't learn in school the digital communications tools and software package I'm using in everyday work!