Just days after his remarks about the possibility of a recession contributed to a massive sell-off in US and world markets, former Federal Reserve chairman Alan Greenspan made even more explicit his gloomy forecast, saying there is a "one-third probability" of an American recession by year's end.The current economic expansion will not have the staying power of its decade-long predecessor, Greenspan told Bloomberg.
"We are in the sixth year of a recovery; imbalances can emerge as a result," Greenspan said.
The most recent remarks from the venerable economist marked his strongest words yet about the looming possibility of a recession in the world's largest economy and the third time in eight days he had issued the warning.
Known during his 18-year tenure at the helm of the US central bank for his carefully planned remarks - often opaque and ambiguous - Greenspan, 81, now seems plain-spoken. This new personality has set him head to head against his successor.
Greenspan's first recession warning sparked comments from current Fed chairman Ben Bernanke that he is comfortable with current interest rate levels, and that factors contributing to inflationary risks in the United States appear to be waning.
A day after the global rout in equity markets last Wednesday, Bernanke said stock markets "seem to be working well" and pointed to a "reasonable possibility" the economy will strengthen in mid-2007. But after Bernanke's calming words in front of the US
Congress, Greenspan repeated his comments that a US recession was possible by year's end. Bernanke declined to react to Greenspan's latest remarks. Bernanke will speak today on government-sponsored enterprises and could speak on the health of the US economy during the question-and- answer session expected afterward.
Treasury Secretary Hank Paulson has also joined the chorus of officials rejecting the predictions of Greenspan, who many still consider more authoritative than Bernanke.
"We are looking at a global economy now ... [that's] as strong as I have seen it any time during my business career," Paulson said Friday.
He added he feels good about the economy and discounted the chance of a downturn, saying the recent volatility in equity markets was not an indicator of poor economic fundamentals.
The US economy is making a successful move from an unsustainable high rate of growth to "one that is quite sustainable," Paulson said.
In contrast, Greenspan's recent comments have repeatedly stressed that the current period of economic expansion is nearing its end. "It is possible that we can have a recession at the end of this year," he said. He also stressed that exact economic outlooks could not be accurately made in the near term.
