Greenspan: Odds rising for a recession

In an interview with NPR News, Mr. Greenspan says that the odds of a recession are “clearly rising” because of the slowdown in economic growth. “We are getting close to stall speed … and we are far more vulnerable at levels where growth is so slow than we would be otherwise,” the former Federal Reserve chairman says. “Indeed it’s like someone who has an immune system that’s not working very well is subject to all sorts of diseases and the economy at this lever of growth is subject to all sorts of shocks.”

Many say that it was Greenspan and his policies that led up the and were some of the root causes of the housing bubble and subsequent collapse. But, Greenspan says he’s not to blame for the housing bubble and credit crisis that have spread like a virus throughout the nation’s economy.“We’ve had housing bubbles in two dozen or more countries around the world all of which look almost identical to ours and the reason why we’ve had these bubbles everywhere is everybody’s long term rates have gone down, and that in turn I trace back to the extraordinary events that occurred when central planning became an obviously inefficient way to operate an economy,” he tells the host of Morning Edition.

Out of office, but his words still hold weight and influence. He's part of a seemingly ever growing chorus of powerful economic, business and political voices enlightening but also adding momentum as our economy spirals down into a full blown recession.

Harry

Greenspan: Odds rising for a recession

By JEANNINE AVERSA, AP Economics Writer Thu Dec 13, 6:56 PM ET

WASHINGTON - Former Federal Reserve Chairman Alan Greenspan says the odds the U.S. will fall into a recession are "clearly rising" and he believes economic growth is "getting close to stall speed."

Greenspan, who ran the central bank for 18 1/2 years, until early 2006, offered his views on the economy in an interview on NPR News' Morning Edition that will air on Friday. Excerpts of the interview were released on Thursday.

A severe slump in the housing market, a stubborn credit crisis and turbulence on Wall Street are endangering the country's economic health. Growth in the current October through December period is expected to have slowed to a feeble pace of just 1.5 percent, or less.

Economists, including Greenspan, have warned that the chances of a recession are growing.

Asked whether the economy will tip into a recession — something that has not happened since 2001 — Greenspan said, "It's too soon to say, but the odds are clearly rising."

He said he felt this way because of the slowing pace of growth. "We are getting close to stall speed," he said. "We are far more vulnerable at levels where growth is so slow than we would be otherwise," he added. "Indeed, it's like someone who has an immune system that's not working very well is subject to all sorts of diseases and the economy at this lever of growth is subject to all sorts of shocks."

Greenspan's remarks come just days after the Federal Reserve, under Chairman Ben Bernanke, sliced a key interest rate for a third time this year to prevent the housing and credit troubles from sinking the economy.

The situation poses the biggest challenge yet to Bernanke since succeeding Greenspan in February 2006.

Some analysts have questioned whether Bernanke waited too long to cut the Fed's key rate and whether he has acted aggressively enough to soothe the economy's woes. The Fed initially dropped its key rate in September, the first reduction in four years. That was followed up by additional rate cuts in late October and then again on Tuesday.

Greenspan again rejected criticism that his policy actions helped to feed a housing boom that eventually went bust. Critics say Greenspan held interest rates too low for too long after the 2001 recession.

To have prevented such euphoria in housing that fed a bubble in prices, Greenspan said the Fed would have had to jack up interest rates so high that it would have damaged the economy. "That would have broken the back of the economy, and brought the housing boom down," Greenspan said.

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