Thursday 23 February 2017

US economy in danger of double-dip -- Greenspan

Joshua Zumbrun

FORMER US Federal Reserve chairman Alan Greenspan said the slowing economic recovery in US feels like a "quasi-recession" and that the economy might contract again.

"We're in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession," Mr Greenspan said.

Asked if another economic contraction, a so-called "double-dip", was possible, Mr Greenspan said: "It is possible if home prices go down. Home prices, as best we can judge, have really flattened out in the last year."

The former US central bank chairman said that most economists expect "a small dip" in home prices. The US National Association of Realtors reported that the pace of home sales fell in June for a second month. Homes are selling at an annual rate of 5.37 million, and the group's chief economist Lawrence Yun said transactions will be "very low" in coming months.

"If home prices stay stable, then I think we will skirt the worst of the housing problem," Mr Greenspan said. "But right under this current price level is a very large block of mortgages, which are under water, so to speak, or could be under water. And that would induce a major increase in foreclosures, foreclosures would feed on the weakness in prices, and it would create a problem."

Home prices in 20 cities rose by 4.6pc in May, according to a report from S&P/Case-Shiller last week. Because of the index's lag in reporting, the extent to which home prices may slacken in June and July is not yet determined.

Mr Greenspan's successor, Ben Bernanke, told the US Congress last month that the economic outlook is "unusually uncertain".

Mr Bernanke and his colleagues on the Federal Open Market Committee will meet in Washington next week. Last week, the commerce department reported that the recovery slowed in the second half of 2010.

The economy grew at a 2.4pc pace, following growth of 3.7pc in the first quarter.

Limited

Any recovery has mostly been limited to large banks, large businesses and wealthy individuals who have just had $800bn (€613bn) added to their pensions, and are spending it and are carrying what consumption there is, he added.

"The rest of the economy, small business, small banks, and a very significant amount of the labour force, which is in tragic unemployment, long-term unemployment; that is pulling the economy apart," Mr Greenspan said.

Economists expected new figures on Friday which show that the unemployment rate rose to 9.6pc in July from 9.5pc. Mr Greenspan repeated his warning that fiscal deficits could push up long-term interest rates and threaten the recovery.

Irish Independent

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