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Greenspan: U-Shaped Recovery

Posted by Larry Doyle on February 8, 2010 11:30 AM |

Alan Greenspan is certainly not viewed in the same light now as he was during a large part of his tenure as chairman of the Federal Reserve. That said, when the former Fed chair speaks, people do listen. What is he saying now? Greenspan is throwing some cold water on the topic of a V-shaped economic recovery. Bloomberg highlights his views this morning in writing, Greenspan Sees ‘Slow’ Recovery, Is ‘Concerned’ if Stocks Drop:

Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall.

A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program. “It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity.”

I will be perfectly frank that I am more than a little surprised by Greenspan’s comment here. Why the primary attention on the stock market? The stock market is ultimately a reflection of the health of the economy, not a driver of that health.

On other topics, Greenspan offered the following assessments and Bloomberg amplified them:

1. Unemployment: likely will stay around 9 or 10 percent for most of this year, Greenspan said. “It’s very difficult to make the case that unemployment is coming down any time soon,” the former Fed chief said.

2. Job Growth: Greenspan, who served as Fed chairman from 1987 until 2006, said the most useful step Congress could take to create jobs at this point would be to enact tax cuts for small businesses.

3. Housing: In the residential property market, Greenspan said home prices are “bottoming out.” The housing market was the epicenter of the recession, and foreclosures are projected to set a record this year, according to private forecasts.

4. Deficit: Regarding the federal budget deficit, which the Obama administration projects at more than $1 trillion for the second consecutive year, Greenspan said a tax increase will be needed and that the budget shortfall threatens the country’s standing in financial markets.

Greenspan’s opinions are consistent with the views offered by the CFO survey highlighted in my commentary this morning,“When Will Our Economy Return to Normal?”

While neither Greenspan nor the CFOs are so bold as to assign a letter to our future economic recovery, this writer is not going out on a limb to qualify the former Fed chair as decidedly in the U-camp.

How do you read his opinions or those of the CFOs?


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