Odds Of Recession In US At Just Above One-Third Now

Source : The Business Times, September 18, 2007

Huge inventory of unsold homes adds to selling pressure

(NEW YORK) The probability of a US recession has increased and it is now slightly more than a third, said Alan Greenspan, who earlier in the year put the chances at one-third.

Mr Greenspan said there was a 'very large' inventory of unsold, newly built homes putting pressure on builders to sell them quickly, The Wall Street Journal reported in its online edition yesterday, citing an interview with him.

As a result, 'we have the capability of far bigger price declines', which will pinch home equity, lead to more defaults on sub-prime mortgages and pressure consumer spending, Mr Greenspan said, according to the Journal.

Mr Greenspan is giving interviews to promote his memoir, The Age of Turbulence: Adventures in a New World, which was being published yesterday.

In the Journal interview, Mr Greenspan said he had put the odds of a national decline in housing prices at less than 50-50, at least until a couple of months ago, based largely on the experience of Britain and Australia.

But he said he had become less optimistic since his book was finished, when it became clear the construction industry was unable to cut the number of housing starts below the rapidly falling level of home sales, the Journal reported.

Mr Greenspan also expressed dismay in the Journal at the Democratic Party. In his book, he criticises President George W Bush and congressional Republicans for abandoning fiscal discipline and putting politics ahead of sound economics.

He told the Journal he was 'fairly close' to former president Bill Clinton's economic advisers, but 'the next administration may have the Clinton administration name but the Democratic Party . . . has moved . . . very significantly in the wrong direction'.

He cited its populist bent, especially its scepticism of free trade. Mr Clinton's wife, Senator Hillary Clinton, is the Democratic presidential frontrunner.

Mr Greenspan, a self-described libertarian Republican, said he was not sure how he would vote in the 2008 election, the Journal said.

'I just may not vote,' the paper quoted him as saying. 'I'm saddened by the whole political process, and it's not an accident that Republicans deserved to lose (congressional elections) in 2006 - it wasn't that the Democrats deserved to win,' the Journal quoted Mr Greenspan as saying.

'When it came time to rule, all of a sudden their ratings collapsed, and the reason they collapsed is they're just as negative as the Republicans. -- Reuters