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US in or near recession, says Greenspan

NEW YORK – THE United States economy is probably in a recession or about to slide into one, former US Federal Reserve chairman Alan Greenspan has said in an interview with The Wall Street Journal.

The odds are ‘not overwhelming, but they are marginally in that direction’, he was quoted as saying.

‘The symptoms are clearly there. Recessions don’t happen smoothly. They are usually signalled by a discontinuity in the market place, and the data of recent weeks could very well be characterised in that manner,’ he said.

Mr Greenspan was reported last month as saying that he saw the chances of a US economic recession at around 50 per cent, compared with his previous view of a 30 per cent chance.

In the latest interview, he referred to a drop in the Institute for Supply Management’s purchasing managers index, as well as a rise in unemployment last month, and said the odds of a recession were still close to 50 per cent but ‘more likely higher than lower’.

Mr Greenspan first publicly raised the possibility of recession in February last year. He saw a glimmer of hope in the housing market, saying new-home sales might have hit bottom because the number of purchases financed by sub-prime and Alt-A mortgages – a category between sub-prime and prime – had fallen to zero.

Bloated inventories, however, mean housing construction and prices are still bound to fall, he was quoted as saying by the Journal.

Mr Greenspan, whom some blame for fuelling a housing bubble, is signing on as an adviser to hedge-fund firm Paulson & Co, which has profited handsomely from the collapse of that bubble. The firm has assets of US$28 billion (S$40.05 billion).

Mr John Paulson, the company’s founder, is set to make the announcement soon, the Journal said.

Mr Greenspan has been criticised by some for keeping the trendsetting federal funds rate at a low 1 per cent from June 2003 to June 2004, which some say contributed to a housing bubble that is now bursting.

Paulson & Co was among the hedge fund industry’s big winners last year after it bet against sub-prime mortgages.

 

Sources: REUTERS (The Straits Times 16 Jan 08)

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