Wednesday, August 19, 2009

 

Did Greenspan say "BUST"?



Greenspan predicts boom and bust (finally)

Former Federal Reserve chairman Alan Greenspan has predicted the US economy to mount a strong recovery for the rest of the year - before falling back again next year.

'I think we're OK for the next six months,' Greenspan told news agency Reuters in an interview. 'We are getting a recovery in (housing) starts and motor vehicles, but the process doesn't have legs to it.' (DID THIS CLOWN ACTUALLY SAY SOMETHING CORRECT FOR ONCE IN HIS "CAREER"?)

Car sales have been boosted from government efforts such as the $3bn 'cash-for-clunkers' trade-in scheme, although critics argue that it merely brings forward spending, robbing tomorrow's economy to pay for today's recovery.

Greenspan, who stepped down as Fed chairman in 2006 after 18 years, said the US market for motors was 'saturated', with 20% more cars and light trucks on the road than there are licensed drivers.

As for the property market, a sharp drop in the number of homes built is helping homebuilders clear inventory, but Greenspan said it was unlikely that the rate of home ownership would return to the peak of the boom years, which will keep home sales subdued.

While he was widely praised while as Fed chairman for presiding over the longest uninterrupted period of economic growth in modern US history, from 1991 to 2001, his record has recently come in for criticism for keeping interest rates too low allowing the consumer debt and property bubbles to inflate.(HOW CAN IT BE IN DOUBT BY ANYONE?)

Greenspan has defended his record repeatedly, saying global forces overwhelmed the US central bank's efforts to raise borrowing costs. He has also maintained that bubbles cannot be detected until they burst. (TOTAL NONSENSE!)

His confidence in a recovery this year is that demand for goods is running at 1.25 percentage points above the pace at which they are being produced. To close that gap, companies need to make more goods, which would generate gross domestic product growth of maybe 4% to 5% if it happened all in one quarter and 2.5% per quarter if spread out over six months.

A rebound in stock markets since March 2009 lows may also add some fuel to the recovery by helping companies obtain cheaper sources of funding and rebuilding household wealth.

'The 50% rise in corporate equities in the United States, and more than that in the rest of the world, has created an important buffer for debt,' he said. 'The consequent major contraction of yield spreads across the globe has added more fiscal stimulus than anybody realises.'

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