Greenspan Says Recession Length Set by Credit Rout
Former Federal Reserve Chairman Alan Greenspan said he hopes the worst of the credit-market crisis is over and that the length of a U.S. recession depends on how long the financial turmoil lasts.
The situation is still critical, and the crisis may drag into next year, Greenspan said via satellite to a conference at Fiat SpA's headquarters in Turin, Italy. His remarks were translated from English to Italian by an interpreter and back to English by Bloomberg News.
The former central-bank chief said he didn't know how deep or long a recession would be, and added that demand from Asia may alleviate the magnitude of the decline. Greenspan, who retired from the Fed in 2006, has described the credit crisis as the worst in 50 years.
Should the credit crisis extend into 2009, the depth of the current recession will exceed the past two downturns, Greenspan said. The most recent recessions were in 2001 and 1990-91.
The National Bureau of Economic Research, which determines U.S. economic cycles, has yet to decide whether the current slowdown is a recession. Greenspan's view has evolved from a year ago, when he estimated a one-in-three chance of a contraction.
Greenspan, 82, said earlier this month that the drop in U.S. home prices will probably end “well before'' early next year as the number of houses on the market diminishes, aiding an economic rebound free credit report.com.
Currency Intervention
Asked about foreign-exchange markets, Greenspan expressed skepticism in the idea of so-called equilibrium exchange rates, where currencies achieve their fair value. He also doubted whether central banks could be successful in affecting the exchange rate of a currency through intervention.
The U.S. dollar has slumped 14 percent against the euro in the past year, reaching a record low of $1.5983 yesterday. Finance chiefs from the Group of Seven major nations warned a week ago that the “sharp fluctuations'' in currencies since February may threaten economic and financial stability.
While buying and selling of currencies by central banks was successful in the past, the recent examples of intervention since the 1990s have had more mixed results, Greenspan said. He said the yen was little affected in 2004 when the Bank of Japan stopped intervening to sell the currency.
Greenspan judged that there is little proof that interventions are successful.
Filed under: money by Wolf