Greenspan Warns of Recession

Former Fed Chairman Alan Greenspan is warning that by the end of the year that the economy could slip into recession.

“When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign,” Greenspan said via satellite link to a business conference in Hong Kong. “For example in the U.S., profit margins … have begun to stabilize, which is an early sign we are in the later stages of a cycle.”

“While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 … with some slowdown,” he said.

Greenspan said that while it would be “very precarious” to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

The one bit of good news is that Greenspan notes that there appears to be little evidence that the downturn in the U.S. housing market is spilling over into the rest of the economy. So the possibility of a recession, while real, may not be that large at this time.

UPDATE (James Joyner): What always concerns me in these cases is the risk of self-fulfilling prophecy. Greenspan’s former position guarantees that he’ll be taken seriously and his pronouncements might influence potential investors. His talk of “irrational exuberance” and “housing bubbles” almost surely had a part in those events coming to pass.

FILED UNDER: Economics and Business,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Christopher says:

    :::yawn:::

    Well, I for one do not see it happening.

    Since the last recession, started in the Clinton Administration, the economy went through quite a lot. For the next 3 years at least, I do not see a recession at all.

  2. floyd says:

    Imagine the nagged feeling Ben Bernanke must feel daily with Greenspan constantly breathing down his neck!cheeeeesh!!

  3. Edgardo says:

    Steve, you should have refrained to play Greenspan’s latest nonsense comment on the economy. Read it a hundred times and there is nothing on it that really throws light on what is going on in the economy. Your own comment reflects that there was nothing on what he said that really provides any insight on what may happen–except, of course, that anything may happen!

    Contrary to what many people think, Greenspan was a terrible Fed chairman; for example, he himself engineered the recession of 1991-92. I’m still waiting for someone to provide a detailed assessment of Greenspan’s performance at the Fed, but for a long time my reaction has been very negative (one exception was the way the Fed handled the possibility of a liquidity crisis on 9/11/01).

    How much has been the Fed spending for its chairman to make nonsense comments on the economy? We economists are against waste, well let me tell you that the Fed’s economic analysis is a waste. The reason why many economists liked first Greenspan and like now Bernanke is that the Fed has been captured by economists (sorry, I must say macroeconomists).

  4. DL says:

    I put his comments in the same basket as Henry Kissingers. Gurus are too often are what we make them!

  5. Bandit says:

    Eventually because of business cycles there will be a recession and if you keep posting on it every other day you’ll eventually be correct.

  6. I don’t think Greenspan’s pronouncements are self-fulfilling prophecies. The housing market is suffering because the average American can’t afford the prices in the housing market. Who’s to blame for that? Real estate agents? Sellers? Employers who aren’t compensating employees well enough to keep pace with ever-increasing costs of living?