Greenspan says US 'on the edge' of recession

Reuters

HOUSTON - Former US Federal Reserve Chairman Alan Greenspan on Thursday said the US economy is "clearly on the edge" of a recession.

Greenspan said the economy will continue to erode until there is a stabilization of US housing prices.

"We have a long way to go" before housing prices hit a bottom, Greenspan told energy executives at the CERA conference.

"Stagflation is too strong a term for what we are on the edge of," Greenspan said.

High oil prices are dragging on the economy, but the fact that they haven't done more damage shows it is resiliency.

"It's a burden now," Greenspan said. He added that it's "quite remarkable" that the US economy is "able to do reasonably well" with oil prices near historic highs.

Crude oil futures hit above $95 a barrel on Thursday and went above $100 in early January.

Greenspan again -- as he had last month -- said that the likelihood of the US economy going into recession was "50 percent or better."

The subprime mortgage crisis would already have put the United States into recession if US businesses weren't healthy in part as the result of years of low interest rates, Greenspan said.

"If businesses weren't in extraordinarily good shape, I have no doubt we wouldn't be asking if we're in a recession, but how long and how deep," Greenspan said.

"Obviously, they (businesses) are not pushed for credit," said Greenspan.

Banks have cut back lending and will continue tight controls on borrowing until housing prices backed by subprime mortgages stabilize, Greenspan.

Stagflation is a period when economic growth is stagnant but when prices rise. Recession is at least two quarters of negative economic growth.