In This Article
30-Second Summary
Headline Link: ‘U.S. Economy on Brink of Recession, Greenspan Says’
Video: ‘Fed, Econ & You’
Background: The definition of a recession
Historical Context: Stagflation—1970s economic style
Opinion & Analysis: Piercing inflation
Reference: Guide to the U.S. Economy; economic cycle data
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Ryan Remiorz/The Canadian Press/AP
Former United States Federal Reserve Board chairman Alan Greenspan listens
to his introduction before speaking to a bank conference in Montreal Friday,
May 30, 2008. (AP)
Former United States Federal Reserve Board chairman Alan Greenspan listens
to his introduction before speaking to a bank conference in Montreal Friday,
May 30, 2008. (AP)
Recession Looming, Says Former Fed Chief
by
Anne Szustek
Alan Greenspan said Tuesday that America “is on the brink” of a recession, with the chances of an economic slump greater than 50 percent.
30-Second Summary
On the eve of the Federal Reserve’s announcement on whether it is cutting interest rates, retired Federal Reserve Chairman Alan Greenspan said, “a rebound at this stage is not something I think is in the immediate outlook.”
Current Federal Reserve Chairman Ben Bernanke is not expected to make on Wednesday what would have been the eighth interest rate cut over the past nine months or so. But CNBC’s Steve Liesman foresees a bump in interest rates within the next year—up to as much of a benchmark rate of 3.25 percent from its current 2 percent.
Meanwhile, consumer inflation pushes on. Combined with sluggish retail sales numbers, employment and salaries, some economists are muttering “stagflation”—an economic pattern difficult to remedy, given the conflicting prescriptions necessary to rein in prices while allaying other indicators.
Greenspan is among those saying that high prices need some monetary intervention—argues Joseph Lazzaro of BloggingStocks: his reference “to a potentially highly unstable inflation environment as his signal to financial players that monetary policy has to tighten at some point to put a lid on U.S. inflation.”
24/7 Wall Street’s Douglas A. McIntyre quips that Greenspan’s concept of the economy is so far removed from reality, however, that “his family pins a note on his shirt so that the other patrons know where to send him when the day is over.”
Current Federal Reserve Chairman Ben Bernanke is not expected to make on Wednesday what would have been the eighth interest rate cut over the past nine months or so. But CNBC’s Steve Liesman foresees a bump in interest rates within the next year—up to as much of a benchmark rate of 3.25 percent from its current 2 percent.
Meanwhile, consumer inflation pushes on. Combined with sluggish retail sales numbers, employment and salaries, some economists are muttering “stagflation”—an economic pattern difficult to remedy, given the conflicting prescriptions necessary to rein in prices while allaying other indicators.
Greenspan is among those saying that high prices need some monetary intervention—argues Joseph Lazzaro of BloggingStocks: his reference “to a potentially highly unstable inflation environment as his signal to financial players that monetary policy has to tighten at some point to put a lid on U.S. inflation.”
24/7 Wall Street’s Douglas A. McIntyre quips that Greenspan’s concept of the economy is so far removed from reality, however, that “his family pins a note on his shirt so that the other patrons know where to send him when the day is over.”
Headline Link: ‘U.S. Economy on Brink of Recession, Greenspan Says’
Greenspan cast aside contentions that a lax lending environment during his time as Fed chief is to blame for the current credit crunch: “As far as I’m concerned, the data do not support it. The housing bubble is clearly an international phenomenon.”
Source: Reuters
Video: ‘Fed, Econ & You’
The Federal Reserve is not expected to announce an interest rate adjustment on Wednesday. Signals point to an interest rate hike within the next year, however, says CNBC’s Steve Liesman—up from the current 2 percent benchmark rate—to as much as 3.25 percent.
Source: CNBC
Background: The definition of a recession
“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales,” writes the National Bureau of Economic Research, a privately run, not-for-profit committee of well-regarded U.S. economists. “A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion.”
Source: National Bureau of Economic Research
The CBC expands upon the NBER’s definition, pointing out that it can take up to a year and a half to be able to identify a recession accurately. The Canadian broadcaster cites an old economic adage: “It’s a recession when your neighbor loses his job. It’s a depression when you lose your own.”
Source: CBC
The 2008 U.S. economy has not fit into the textbook definition of a recession, but most economists say the country is in the midst of a slump.
Source: findingDulcinea
Historical Context: Stagflation—1970s economic style
The Fed cannot fight unemployment and inflation at the same time, as they require conflicting remedies, writes The Wall Street Journal. Stagflation occurs when a period of low or negative growth coincides with high inflation. Although inflation is higher than expected, it is far below the levels it reached in the 1970s, the last time the United States experienced stagflation. Rising oil prices, however, could push prices up further. To tackle high inflation in the 1970s, the Federal Reserve under Paul Volcker increased interest rates dramatically, unleashing a deep recession in 1981–82.
Source: The Wall Street Journal (subscription may be required)
Opinion & Analysis: Piercing inflation
Douglas A. McIntyre insinuates on blog 24/7 Wall Street that Greenspan is so out of touch with economic reality that the former Federal Reserve head “spends his days at the race track. His family pins a note on his shirt so that the other patrons know where to send him when the day is over. … Because he is colossally rich, Greenspan can afford a $50 loaf of bread and $5 a gallon gas.”
Source: 24/7 Wall Street
BloggingStocks’ Joseph Lazzaro believes that Greenspan’s “characteristically cryptic” comments were most likely in reference “to a potentially highly unstable inflation environment as his signal to financial players that monetary policy has to tighten at some point to put a lid on U.S. inflation.”
Source: BloggingStocks
Reference: Guide to the U.S. Economy; economic cycle data
FindingDulcinea’s Web Guide to the U.S. Economy includes an outline of the history of the American economy, an overview of federal economic oversight organizations and suggestions for where to stay on top of financial news.
Source: findingDulcinea
The National Bureau of Economic Research compiled a list of American economic cycles from 1854 to 2001.
Source: National Bureau of Economic Research
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