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Greenspan: Recession coming
Posted by: McQ on Monday, February 26, 2007

Of course this is like predicting sunrise in many cases. Alan Greenspan, who apparently isn't retired (or doesn't sound like it anyway) is in Hong Kong telling us the US economy is possibly headed for recession by year's end:
Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end.

He said the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.
Of course, we'll see. The economy has been surprisingly strong and steady for a number of years, yet for some reason we seem bent on talking ourselves into a downturn. And if it happens, as Greenspan is predicting, at the end of '07 or in early '08, it will indeed have political ramifications.

The U.S. economy grew at a surprisingly strong 3.5 percent rate in the fourth quarter of 2006, up from a 2 percent rate in the third quarter. A survey released Monday by the National Association for Business Economics showed that experts predict economic growth of 2.7 percent this year, the slowest rate since a 1.6 percent rise in 2002.
Now you have to work very hard to make a comparison between 2.7% and 1.6% growth and contend that 2.7% is therefore a sign of a poor economy. But that's exactly what is being done here. While we'd all love to see at least 3% (and if it is still growing at the predicted rate it could be "revised upward" later on), 2.7% isn't exactly chopped liver. And frankly, it's nowhere near the 1.6% of 2002.

Last thing of note:
Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market.

"We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said.
As you'll recall, the contraction of the housing market was previously seen as the harbinger of recession.

Yup, economic prediction is much like climate change prediction, only more exact. Heh ...
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Previous Comments to this Post 

Well it IS...and if he and Paul Krugman keep predicitng one every six months, six months out from the prediction, they’ll be day.
Written By: Joe
URL: http://
I think a slowdown is pretty much baked into the cake over the next 18-24 months. I can’t say about an actual recession, but profit margins (at record levels) will likely contract. That means a likely slowdown in earnings growth. Employment will still be strong for a while, as will compensation growth (which has been rising rapidly and increasing pressure on profit margins.) The risk is that along with the housing recession (and if history is a guide, which is a dangerous assumption if better than nothing, it has a good ways to go in both depth and length) the earnings slowdown could lead to asset falls, specifically stocks. If both stocks and housing fall, consumer spending could slow down as savings out of income increase and cause the downward pressures to feed on themselves. Of course there are always the unexpected shocks which happen far more often than standard theory suggests they should.

Given the fundamentals I would be more optimistic, but overvalued assets with skinny risk premiums have led to many a financial crises. I am not talking about a meltdown like the depression, but a recession something like 1991 and the beginning of this decade driven by financial issues due to too many people with too much leverage dependent on a very stable economy. Last year was the only year in my memory where every country had positive economic growth. Truly extraordinary. People are making financial bets that that kind of widespread, positive stability will continue. I hope they are right but I am betting they are proven unwise over the next 24 months.
Written By: Lance
Of course this is like predicting sunrise in many cases.
Two things that are as sure as sunrise:

1. We will eventually go back into a recession phase of the business cycle.

2. If Bush is still President it will be blamed on "Bushinomics."
Written By: Aldo
URL: http://
Please, even if Bush isn’t president it will still be blamed on Bushinomics.
Written By: Jeff the Baptist
Weakness in the USD only lingering effect of Bushinomics, internal economy looks strong.
Written By: unaha-closp
Count me with Lance on this one... I think the housing bubble will get the soft landing they need, but only because I expect the Fed to inflate us out of that. But right now everyone is leveraged all over the place, expecting nice, stable growth. The situation is fine, as long as it remains stable. Any big hiccups, though (terrorist attack, major oil spike, or rash of foreclosures), and we could be in for trouble.
Written By: Brad Warbiany
Weakness in the USD has more to due with lacking of national savings, and our propensity to import tons of stuff.
Written By: Harun
URL: http://
only because I expect the Fed to inflate us out of that.
That is certainly one possibility, but the fed is walking some tricky waters on that. Right now the trade deficit is behaving itself a bit better. Unsurprisingly we now see inflation picking up and running higher than the feds target of 1-2%. Falling housing and rising inflation put the fed in a bit of a bind. It would be easy to make a mistake in that case, which the fed has made many times before. Not a job I would want.
Written By: Lance
Weakness in the USD has more to due with lacking of national savings, and our propensity to import tons of stuff.
The value of the US Dollar, and every other currency on the planet, is a function of how many of those pieces of paper their respective central banks print. There is no historical correlation between trade deficits and the value of the currency to support such a theory.
Written By: DS
URL: http://

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