In the past month the yield on the 30 year US Treasury Bond has closed trading for the day at yields below Fed Funds. In a normal business cycle, the Yield Curve inverts just before a major decline in interest rates in the middle of a recession. Flat Yield Curve means buyers of long term securities are betting interest rates will decline further . Otherwise, they would sell long dated securities and get the same yield on less risky, short dated securities. Flat Yield Curve means there is no incentive for banks to invest their money anywhere but Fed Funds.
Banks live on current yield.
Less incentive for banks to make loans to businesses means a slowing economy. Flat Yield Curve means the Fed will soon be easing short rates. To say that the increase in the value of financial assets is a sign of trouble is to completely misread both the facts and the theory of inflation and interest rates. Fed will lower short-term rates . Unless something is done to stimulate bank lending and the money supply, the Idiot Greenspan will soon be facing the threat of deflation at the retail level.