Greenspan Sees Steep Decline In U.S. GDP

Ex-Fed Chair Has No Doubt About Global Recession, Predicts Big Drop In Gross Domestic Product

(CBS/AP)  Former Federal Reserve Chairman Alan Greenspan said Friday there is no doubt the world economy is in a very severe recession and that U.S. gross domestic product will decline significantly in the last three months of the year.

Speaking at a business lunch in Toronto, Greenspan said the economy is not quite in a free fall but something close to it.

"That we are in a recession, very severe, there's no question," Greenspan said. "Gross domestic product in the United States in the fourth quarter is going to be down significantly."

The former Fed chairman said early data for October show the GDP in a severe contraction that could top a 3 percent annual rate of decline.

"We know we are going down and there's very little we can do about that," Greenspan said.

U.S. home prices and stock prices are critical, he noted. Housing values might have another 5 to 10 percent to decline before they bottom, which could come sometime in the first half of next year, he said.

"It's important to recognize we are not in quite a free fall but something close to it," Greenspan said. "This economy, and indeed the world economy, has tilted over and is moving down fairly aggressively, pretty much across the board."

On Wall Street Friday buyers returned after two days of heavy losses, mindful of the economy's growing problems but attracted by stocks' lower prices. Analysts said the advance, which also came amid relief that a bad report on unemployment wasn't worse and followed dour third-quarter reports from Ford and General Motors, was to be expected as Wall Street experiences a rocky recovery from October's devastating selling.

The major indexes jumped more than 2 percent, including the Dow Jones industrial average, which rose 250 points in light trading. For the week, the Dow and broader benchmarks like the Standard & Poor's 500 index lost about 4 percent after surging 10 percent or more last week.

The market briefly came off its highest levels of the session after President-elect Obama reiterated there is a great deal of hard work to be done to restore the economy to health. Investors had optimistically sent prices higher, only to temporarily pull back when Obama underscored what they already know: that the economy's problems won't be easily solved.

The broader S&P 500 index added 26.11, or 2.89 percent, to 930.99, and the Nasdaq composite index rose 38.70, or 2.41 percent, to 1,647.40.

Greenspan, who was the head of the U.S. central bank for 18 1/2 years before stepping down in 2006, said stock prices are important because higher prices increase equity and improve balance sheets.

"If the value of equity goes up, that amount of capital is available to be disbursed most anywhere," he said. "Stock prices tend to lead to recovery. There comes a point where the market gets exhausted on the downside and that to me is going to be a very critical variable as to when we actually turn it around. There's no way of preventing what's going on now. That was caused by the shock of the financial system a couple of months ago."

Greenspan, 82, described it as a once-in-a-century event.

He said the current pattern has all the characteristics of a market bottom.

"All bottoms look like what we're looking at now, but it doesn't follow that this bottom always leads to a recovery," he said. "It may just be another stage before you go down again, and I'm not going to forecast where we are going because I frankly don't have a clue."

In his testimony before the U.S. House Oversight Committee last month, Greenspan acknowledged that the crisis has exposed flaws in his thinking and in the workings of the free-market system.

He said then that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had been proven wrong by the current crisis. He called this a "mistake" in his views and said he had been shocked by that.

[differnet]

In 2007, the GDP was 13.84 Trillion dollars. The US Dept stands at over 10 Trillion. The deficit for this fiscal year stands at 700 Billion dollars and we have yet to actually borrow/allocate the vast majority of the 700 Billion. So, like consumers that are upside down on their houses (oweing more than the house is worth), there is a very good likely hood that the USA will be uside down by the end of this fical year on our own country.

[hologram5]

Listen to him, he is one of the criminals that started this mess so of course he knows what is going to happen. They have manipulated our economy for the last 40 years.

[wl7bzh]

Oh, now Greenspan sees a deep decline-Duh, so does everybody else including John Q. Public.

[nearl4511]

Funny thing is that Greenspan never spoke this clearly when he was chairman.

Is this the real fellow?

[systems6-2009]

keep printing dollars!! he,he

[be_real]

Unions are part to blame for this economy, at least in the AUTO industry. Overpaid SOB''s.

[incog-nito]

Correction: ...I sell you something you don''t make or can''t make very cheaply, AND VICE VERSA, and we''re both better off as a result.

[incog-nito]

Some people think "free trade", like "free market", is a cure-all to all economic woes. Here''s how free trade ideally is supposed to work: I sell you something you don''t make or can''t make very cheaply, and we''re both better off as a result.

Nowadays free trade actually works like this: I (China) sell you what you don''t make, and I also sell you what you used to make but don''t anymore because I make it much more cheaply. I (China) keep getting richer and more powerful while you (the U.S.) keep getting poorer.

[bm6005]

Outsourcing is not our problem.

Posted by donbl

When nobody''''s working, nobody''''e buying MORON. Typical krap from you. You either have an MBA or are just fundamentally stupid! In the past we''''ve had mfg. lead us out of recession/depression. They are gone fool!! *** is going to replace them?

[bm6005]

Look, I spent more than 40 yrs in mfg. From Auto''s to aerospace to hi tech. Mis-Management by those supposedly in charge of it coupled with reliance on kids wet behind the ears passing themselves off as consultants/experts got us where we are today. Sure they have an MBA but to them an ice cream cone is the same as a car. NOT!! We have done this to ourselves and until we rid ourselves of these "CONsultants who know not of what they speak we will be in t.urd heaven. Bring back those who know *** it is they''re making!!!

[perk235]

Outsourcing is not our problem.
-------------------
It''s not a problem to the CEOs of the companies that outsource. They make a killing.

However, when our GDP is built on consumer spending, and we don''t make what we buy, then the money flows from the hands of those who spend to those who make the goods.

[omega40]

When nobody''''s working, nobody''''e buying MORON. Typical krap from you. You either have an MBA or are just fundamentally stupid! In the past we''''ve had mfg. lead us out of recession/depression. They are gone fool!! *** is going to replace them?

Posted by bm6005 a


Exactly, look at our last recession which most experts classified as shallow, we had a jobless recovery.

[bm6005]

Offshoring''s effects on our job market is not rocket science. There are only so many hamburgers to flip, insurance policies to write, little old ladies life savings to steal, etc.

[bm6005]

Outsourcing is not our problem.

Posted by donbl

When nobody''s working, nobody''e buying MORON. Typical krap from you. You either have an MBA or are just fundamentally stupid! In the past we''ve had mfg. lead us out of recession/depression. They are gone fool!! *** is going to replace them?

[pvperson]

I''ve always respected Greenspan but his comments aren''t welcome today. He has no real input anymore and his negativism is hurting, not helping. It''s time to shut up Allen.

[nothappyatall]

Go away Greenspan you are NO LONGER employed you are an *EX* Govt employee, go away we dont need your negativity.

[amazing_g]

Greenspan, SHUT UP!

[shyam8]

Old Greenspan needs to shut up and go into retirement. He is the man responsible for this catastrophic meltdown. With setting senility, he might have forgotten!

[irmcvet97]

This mess is going to take some time to get out of and will without a doubt be very painful. Let''s just commit to ourselves and our children that the NEXT Politician who steps up and wants to take us down the Path of "Trickle Down"? Let''s commit that we will gang up on that low life and ride him right out of town on a RAIL. IT does NOT nor has it EVER worked.

[txgrouch2007]

Good bye economy: it was good while it lasted. So long.
Posted by nfclrd at 09:53 AM : Nov 08, 2008

Sounds like you''d enjoy Countryside and Small Stock Journal. It''s a magazine for "off grid" homesteaders. Full of good advice and reports about what works to become self-sufficient on your own land.

They''ve been predicting the demise of the economy for about, oh, FIFTY YEARS now...