Greenspan doubts Fed's ability to prevent recession

AFP on Yahoo ^ | 1/30/08 | AFP

[NormsRevenge]

BERLIN (AFP) - Former Federal Reserve chief Alan Greenspan cast doubt on the ability of the central bank to prevent a US recession in an interview to appear on Thursday.

Greenspan told the German weekly Die Zeit that the Fed or political policies could "probably not" keep the world's biggest economy from sliding into recession, as financial markets widely expected the US central bank to cut its main lending rate.

"The influences of the global economy today are stronger than almost any monetary or budgetary response," the German-language weekly quoted Greenspan as saying.

Although he left the post of Fed chairman two years ago, Greenspan's opinions on the economy are still sought after.

"Real long-term interest rates have much more influence over the heart of economic activity than national decisions," he was quoted as adding.

"And central banks have less and less power to influence long term rates."

The former Fed chief put the chances of a US recession at 50 percent, but added: "We have few indications that would allow us to say we are already there."

Some analysts have said that low interest rates under Greenspan's watch were responsible in part for the US housing bubble that burst last year, and led to the current financial crisis.

Die Zeit quoted him as saying he found it hard to understand that "the Federal Reserve policy had somehow allowed housing and stock prices to rise."

Fallout from the crisis, which began with a meltdown of the US market for high-risk, or subprime, mortgages, continues to rock international financial markets and now threatens the US economy with a recession.

For Greenspan however, the turmoil was "entirely the result of market forces at a global level."

The Fed's Open Market Committee (FOMC) was to announce its decision on US lending rates later on Wednesday.

It surprised markets last week by slashing the base Fed funds rate by three quarters of a percentage point to 3.50 percent, but it is widely expected to follow through with another cut to 3.0 percent.

[GnL]

Greenspan is an a** who is married to another a**. Isn’t he dead yet?

[PaRepub07]

“Some analysts have said that low interest rates under Greenspan’s watch were responsible in part for the US housing bubble that burst last year, and led to the current financial crisis.”

it was not the low interest rates, it is the high energy cost which has affected the entire market.

perhaps, if energy cost would have been remained at reasonable levels, budgets would not have been busted.