U.S. economy is falling into recession, former Fed Chairman Alan Greenspan told the Financial Times in an interview Thursday...
It is far from clear that the U.S. economy is falling into recession, former Fed Chairman Alan Greenspan told the Financial Times in an interview Thursday. "The reason we have had this extraordinary volatility in stock markets over recent days is that there is extreme uncertainty about the financial and economic outlook," he said. "You don't gradually fall into recession, you jump."
Greenspan said standard metrics were of little use in forecasting recession:
The models never forecast recession, because the parameters are dominated by what happens in normal times when the economy is growing. In fear-driven periods the parameters are quite different from the periods of euphoria.
He also noted that many companies were largely insulated from an economic downturn:
[C]ompanies have very significant buffers. They could access a lot of potential financing merely by reducing or eliminating the current level of repurchase of shares.
Greenspan said housing prices have not yet begun to stabilize, and would do so only when the liquidation rate of unsold new homes peaked.
There will likely be "some erosion in business capital investment" over the coming months, he said:
Profit margins, I believe, have peaked and the capital investment opportunities in the U.S. are declining.
AI
