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Greenspan says US recession risk up

Former Federal Reserve Chairman Alan Greenspan said on Monday there is an increased risk of a US recession. US stocks fell Monday after Greenspan said some bleak words on the economy.

“Earlier in the year, I was talking about a one-third probability of a recession,” Greenspan said in an interview with Reuters. “It’s come up somewhat, but it’s still at this stage somewhat less than 50 (percent).” But in a separate interview with NBC’s ‘Today’ program, he said: “The evidence so far, is not yet. The economy at this stage, despite this fiscal problem, despite the financial problem, is still holding up. I think we’re going to have to go through this adjustment, as indeed all the other countries are in the process of going through it. There are going to be a lot of people who will have very tragic stories,” he added.

Greenspan, who has granted several interviews to publicize the release of his memoir, “The Age of Turbulence: Adventures in a New World,” also said a sharp drop in house prices poses the greatest risk. “The greatest risk is indeed in the house price issue, because we have a very large overhang of essentially completed, unsold new homes which are deteriorating and which the builders will increasingly try to press on the marketplace, and that tends obviously to put pressure on prices,” he told Reuters. “If we end up with, say, a 5% decline in prices, and a significant decline in housing starts which enables builders to clean out their inventories fairly quickly, then we’re in fairly good shape,” he said. “But if the whole thing festers, it will erode household balance sheets and eventually impact on what the critical support has been in this economy, consumer expenditures,” he added.

US stocks fell Monday after Alan Greenspan said some bleak words on the economy and a British lender’s ongoing trouble added to a negative tone ahead of the Fed’s interest-rate decision. At midday, the Dow Jones Industrial Average was off 72.67 points to 13,369.85. The S&P 500 dropped 11.64 points at 1,472.61, while the Nasdaq Composite was down 25.94 points at 2,576.24.
Greenspan warned in an interview published Monday that British consumers were in for more pain as he predicted “difficulties” ahead in the country’s housing market. Keeping Wall Street anxious about the financial sector, Northern Rock, Britain’s fifth-largest mortgage lender, saw its stock plummet for the second straight session Monday, after issuing a profit warning Friday and getting cash from the Bank of England. (people.com.cn)

US President George W. Bush was surprised by Greenspan, who in his new book criticized the Bush administration harshly, White House press secretary Dana Perino said Monday. “The president was a bit surprised by some of the criticism in the book,” she said. In the 500-page book, “The Age of Turbulence: Adventures in a New World,” Greenspan accuses the administration and the Republican-controlled Congress of abandoning their party’s principles on spending and deficits, according to The New York Times on Friday. The former US central bank chief describes the administration as so captive to its own political operation that it paid little attention to fiscal discipline. “My biggest frustration remained the president’s unwillingness to wield his veto against out-of-control spending,” Greenspan wrote in the memoir.

Defending Bush’s fiscal policies, Perino said that veto threats from the president were enough to keep spending from spiraling too high. Under Bush, government spending for the fight against terrorism increased, and Perino said the Bush administration does not need to apologize for acting on behalf of “the safety and security of the American people.” Greenspan also alleges in his book that “the Iraq war is largely about oil.” But Perino said that Greenspan has since “acknowledged that oil was not the president’s motive for our engagement in Iraq.” (people.com.cn)