December 14, 2007
Contact:
Leah Yoon, NPR

   

FORMER FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN SAYS ODDS OF A RECESSION ARE "CLEARLY RISING"; DENIES THE FEDERAL RESERVE FUELED THE HOUSING BUBBLE AND ACKNOWLEDGES DIMINISHED POWER OF THE FEDERAL RESERVE

ON NPR NEWS MORNING EDITION
TODAY, FRIDAY, DECEMBER 14, 2007

TRANSCRIBED EXCERPT AND WEB EXCLUSIVE BELOW;
AUDIO AVAILABLE FRIDAY MORNING AT WWW.NPR.ORG


December 13, 2007; Washington, DC - Former Federal Reserve Chairman Alan Greenspan tells NPR News the odds of a recession are "clearly rising." In an interview with Steve Inskeep airing today on NPR News' Morning Edition, Mr. Greenspan talks about the slow growth in the national economy, rejects the criticism that the Federal Reserve fueled the housing bubble by lowering interest rates, and offers insight on the limited power of central bankers.

Transcribed excerpts of the interview are below. All excerpts must be credited to NPR News' Morning Edition. The interview airs tomorrow morning, Friday, December 14. Local station's air time of the program is available at www.npr.org/stations. Audio of the interview will be available at www.npr.org. Television usage must include on-screen credit with NPR logo.

-NPR-




STEVE INSKEEP: On Fridays we talk about money and today we sit down with the man who managed the supply of it. Alan Greenspan wants to explain what happened toward the end of his tenure at the Federal Reserve. The Fed chairman presided over the start of a housing bubble which has now turned into a credit mess that is affecting the whole economy. As that bubble gained speed in the early part of this decade, the Fed lowered short-term interest rates as low as one percent. This week Greenspan wrote a column in the "Wall Street Journal," then he came by our offices he says he is not exactly explaining himself.

ALAN GREENSPAN: The problem is not explaining itself, the problem is getting a focus on how to look at the world's economy more appropriately. Certain things are happening in the world which are affecting central banks, have effected central banks essentially because of the extraordinary forces of globalization that arose subsequently end of the Soviet Union.

INSKEEP: Let me stop you for a second because there is a simpler version of this story that is sometimes told: Alan Greenspan lowered interest rates, fueled a housing bubble and got us into a lot of the trouble that we're in right now. What's wrong about that analysis from your point?

GREENSPAN: It doesn't coincide with the facts. First of all, we've had housing bubbles in two dozen or more countries around the world all of which look almost identical to ours and the reason why we've had these bubbles everywhere is everybody's long term rates have gone down, and that in turn I trace back to the extraordinary events that occurred when central planning became an obviously inefficient way to operate an economy.

INSKEEP: You're talking about the collapse of the Soviet Union and related events in the early 90s?

GREENSPAN: Exactly. And in fact that we are seeing global forces dominating long-term interest rates is getting ever more obvious.

INSKEEP: I suppose we should remind people that if you're the Federal Reserve Chairman you don't directly control long-term interest rates that a bank would give on a thirty year mortgage. What you've got to control is the short-term interest rate which may influence the long-term interest rate.

GREENSPAN: Correct. And what we found in 2004 when we started to tighten the market quite considerably and had expected as a bonus that we would get a rise in mortgage interest rates, we didn't. And we concluded that the monetary forces that were arising in the world globally had become so overwhelming relative to the resources of central banks that we had effectively lost control of long-term interest rates and the forces directing higher prices in homes.

INSKEEP: Do you believe there was nothing you could have done that could have prevented the housing bubble or could have brought it down a little more gently?

GREENSPAN: In the United States?

INSKEEP: Right.

GREENSPAN: There's only one thing we could have done, cutting off short-term credit. That would have broken the back of the economy, and brought the housing boom down.

INSKEEP: If you jumped interest rates up to 10% or …

GREENSPAN: If it weren't 10%, we'll go to 40% and if not that 80%. Short of that, the evidence is very clear that there was nothing that any central bank could have done or tried to do because they realized the facts that they couldn't.

INSKEEP: Does that mean that a hard landing which we seem to be experiencing now was inevitable?

GREENSPAN: It was inevitable in one sense. When you get a type of euphoria building in an economy, you're dealing with the innate aspects of human nature - and I've watched bubbles inflate and deflate for 60 years. I'm pretty much convinced that we will never be able by monetary or fiscal policy of government actions short of disabling the economy in undermining those bubbles. Eventually this has to diffuse itself.

INSKEEP: But is it more than housing that you're thinking about?

GREENSPAN: Oh no, no. At the moment, it's a housing deflation. And it's all over the world. It's starting in Spain, and Britain, and a whole series of other countries for the same reasons. And this is clearly going to be impacting the economies of the world.

INSKEEP: Recession?

GREENSPAN: It's too soon to say, but the odds are clearly rising.

INSKEEP: Is there a statistic that causes you to believe the odds are rising? Or a particular behavior?

GREENSPAN: YES. The slowdown in the rate of economic growth. We are getting close to stall speed…and we are far more vulnerable at levels where growth is so slow than we would be otherwise. Indeed it's like someone who has an immune system that's not working very well is subject to all sorts of diseases and the economy at this level of growth is subject to all sorts of potential shocks.

INSKEEP: Alan Greenspan, thanks for coming by.

GREENSPAN: It's been my pleasure.

INSKEEP: Alan Greenspan is former chairman of the Federal Reserve. He's the author of the recently released book, The Age of Turbulence. And you can hear more of our conversation at the end of this year when he's part of our series of conversations we call "The Long View." There's also more about Alan Greenspan on our Website, npr.org.