Friday, February 15, 2008

Greenspan Puts the Chances of a Recession at 50%+

Admittedly the rock star status that Alan Greenspan enjoyed for the last decade will more than likely evaporate as a scapegoat is sought for the on-going economic problems. But with that said the man still has a lot of valuable experience on the economy. In addition he clearly annunciates the two real issues in the economy that will determine how things go: how will the banks fare in 2008 and what will the consumer do in the same period. The severity and duration of a recession will hinge on those two issues. Text in bold is my emphasis. From

Former Federal Reserve Chairman Alan Greenspan said Thursday there's at least a 50% chance the United States will slip into recession, and that the storm clouds over the economy won't clear until home prices bottom out.

Greenspan, speaking at the Cambridge Energy Research Associates' annual energy conference in Houston, said that what may derail the economy are tightening credit markets and a potential slowdown in consumer spending sparked by defaults in the real estate market.

"We're clearly on the edge, it's 50% or better" chances the economy will slip into recession, he said.

If it weren't for the fact that business were so well-supplied with capital - thanks to the low interest rates over the last several years - he said the economy would already be in recession.

Greenspan said things won't look brighter until real estate prices stop falling and banks figure out how much money they lost - only then will they be willing to step up lending again.

He didn't say when that might be, but added "I think we've got a long way to go. This type of problem will fester."

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