Greenspan: Economy On Brink Of Recession
06-24-2008
JOHANNESBURG (Reuters) - Former Federal Reserve Chairman Alan Greenspan warned on Tuesday the U.S. economy was on the brink of a recession, with the chances of that happening at more than 50 percent.
The U.S. economy has been hit by a credit crisis which began in the sub-prime mortgage market, prompting a series of interest rate cuts to help boost the economy. But price pressures are growing, making more rate cuts unlikely.
Asked if the U.S. economy was in recession, Greenspan said: "We are on the brink."
A quick recovery was unlikely, he said via video link to a conference in Johannesburg. "A rebound at this stage is not something I think is in the immediate outlook," he said.
"There are still very considerable structural problems remaining in the financial system. They will remain for a while. It's going to be very difficult. There are a lot of unexpected adverse events out in front of us," Greenspan said.
Greenspan said he did not believe arguments that the housing problems in the U.S. were due to interest rates being too low during his tenure. "As far as I'm concerned, the data do not support it (that argument). The housing bubble is clearly an international phenomenon." (Bold added.)
The last part of the article is the main reason I posted this article. Greenspan says low interest rates did not create the housing bubble, although it is quite clear he is simply trying to cover his own tracks. Interest rates were lowered greatly around the turn of the century to try to soothe the economy from a bursting tech bubble (also created to artificially low interest rates). Low interest rates means more money that can be printed and sent to banks because of the low rates. Banks all of a sudden can get large amounts of capital for very cheap rates, and the subprime mortgage market picks up steam because banks have the money to lend out to riskier customers looking to buy a home. This created the housing bubble which has been bursting since it was realized that those clients could not afford to pay back the banks. Now interest rates are once again being lowered to help out the banks suffering immensely from the bursting bubble. The Fed's even gone so far to bail out Bear Stearns.
Essentially, to cure the bubbles, the Fed is using the same remedy that created the sickness. The tech bubble helped get underway thanks to low interest rates, interest rates were lowered to soothe the bursting bubble, the housing bubble was created through the low interest rates, and now low interest rates are seen as the cure to another bursting bubble. Greenspan's policies were no different than Bernanke's, and I must say he is an ignorant fool if he can't see this. The Fed has caused the "business cycle" for nearly a century now by playing this silly game with interest rates. Meanwhile, inflation has never seemed to stay under control for very long periods of time, and as a result the dollar's purchasing power has been dramatically reduced.
Tags:
alan greenspan, ben bernanke, bubbles, federal reserve, housing, inflation, interest rates, subprime
Posted at: 04:13 PM | Add Comment
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