Alan Greenspan warns that US could be heading for double-dip recession
Alan Greenspan, former chairman of the US Federal Reserve, has added his weight to warnings that the US economy may be heading for a double-dip recession.
Questioned on NBC‘s Meet the Press programme about whether the US could slide into another recession he said: “It is possible if home prices go down. Home prices, as best we can judge, have really flattened out in the last year.”
Mr Greenspan repeated an earlier warning about the risks of an increase in interest rates that could threaten recovery but added: “At the moment there is no sign of that because the financial system is broke and you cannot have inflation if the financial system is not working.”
His comments came against the background of fears that the US recovery is running out of steam.
Figures released on Friday showed growth had slowed from an annual rate of 3.7pc in the first quarter to 2.4pc in the second and, although the Dow Jones Industrial Average recovered from a sharp initial fall, leading economists are pessimistic about the outlook.
Last month Mr Greenspan’s successor Ben Bernanke told Congress that the economic outlook is “unusually uncertain”.
His comments were seen as a signal that President Barack Obama may have to provide a further economic stimulus, a point echoed by the International Monetary Fund in its report on the US economy.
Mr Greenspan, who has been partially blamed for laying some of the foundations for the slide into financial chaos two years ago because he opposed controls over some of the financial instruments that caused the credit crisis, feels house prices hold the key to whether there is a double-dip recession.
But the risks of a major new round of foreclosures is hanging over the market because of negative equity on a large block of mortgages.
Mr Greenspan also expressed concern about the limited impact of stimulus measures.
“Our problem is that we have a very distorted economy,” he said. Recovery had been limited to “large banks, large businesses and high income individuals.”
The rest of the economy was being pulled apart amid tragic long-term unemployment, he added. “There’s nothing out there that I can see which will alter the trend or the level of unemployment,” he said