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banyon
12-16-2007, 06:01 PM
Greenspan sees early signs of U.S. stagflation
Sun Dec 16, 2007 12:02pm

http://www.reuters.com/article/businessNews/idUSN1636789220071216?pageNumber=2&virtualBrandChannel=0

WASHINGTON (Reuters) - The U.S. economy is showing early signs of stagflation as growth threatens to stall while food and energy prices soar, former U.S. Federal Reserve Chairman Alan Greenspan said on Sunday.

In an interview on ABC's "This Week with George Stephanopoulos," Greenspan said low inflation was a major contributor to economic growth and prices must be held in check.

"We are beginning to get not stagflation, but the early symptoms of it," Greenspan said.

"Fundamentally, inflation must be suppressed," he added. "It's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer-term period."

The U.S. central bank has lowered its benchmark interest rate three times since mid-September as a housing downturn, tightening credit conditions, and steep food and energy prices threaten to push the U.S. economy into recession.

But cutting rates can have the unwanted side effect of pushing up prices, so the Fed finds itself in a tricky position of trying to revive growth without spurring inflation.

Last week, U.S. data showed that wholesale inflation rose at the highest rate in 34 years, while consumer prices rose the most in more than two years.

Greenspan repeated his assessment that the probability of a U.S. recession had moved up toward 50 percent but noted that corporate America's debt levels were in good shape, which should help cushion the blow from tightening credit terms.

"The real story is, with the extraordinary credit problems we're confronting, why the probabilities (of recession) are not 60 percent or 70 percent," he said. Continued...

"Because of the decline in long-term interest rates for a protracted period of time, American business was able to fund a significant part of its short-term liabilities and take out low-cost, long-term debt, so the credit needs have not been all that large," he said.

Greenspan has drawn some criticism for keeping the trendsetting federal funds rate at a low 1 percent from June 2003 through June 2004, which some argue contributed to a housing bubble that is now bursting spectacularly.

Greenspan said real estate prices will stabilize only when the overhang of unsold new-construction homes begins to ease, and estimated that financial losses could be in the range of $200 billion to $400 billion as securities tied to failing subprime mortgages lose value.

He warned against any sort of government bailout plan for homeowners that interfered with the normal functioning of markets for home prices or interest rates, saying it would "drag this process out indefinitely." Offering cash to stricken homeowners instead would cause less long-term damage, he said.

"It's only when the markets are perceived to have exhausted themselves on the downside that they turn," he said. "Trying to prevent them from going down just merely prolongs the agony."

(Reporting by Emily Kaiser; editing by Steve Orlofsky)

'Hamas' Jenkins
12-16-2007, 06:04 PM
Obviously there is only one solution:

Deregulation, massive tax cuts, and more spending on Defense....

:hmmm: well, that's three; n/m, those Laffer Curvers never were good at Math it seemed.

BucEyedPea
12-16-2007, 06:12 PM
Guess I was ahead of Greenspan in using the word "stagflation." Vietnam war was a factor last time ( and energy crisis also prompted by interventionism in the ME). Unecessary war and nation building in the ME has contributed to triggering this one.

FTR, I just read Huck wants to increase defense spending 50% and increase the army about the same. That'll sure make stagflation worse.

Cochise
12-16-2007, 06:22 PM
The fuel prices are what drives this, if you remedy that situation everything will be fine.

Amnorix
12-16-2007, 08:38 PM
The fuel prices are what drives this, if you remedy that situation everything will be fine.

I think it's more than that, but even if you want to limit it to oil issues, remedying that isn't what I would call simple. Worldwide demand continues to grow, while the idiotic producers that have nationalized have underinvested in expanding, modernizing and maintaining their production capabilities for DECADES.

Iraq is at 2.5MM barrels per day now, representing something of a glass ceiling at the moment, and a significant improvement over the 1.7 or so they were at for a good while. Just STAYING at 2.5MM will be terrific.

The whole thing is a gigantic clusterf**k of the highest order. Nationalized oil is a nightmare for those of us who import heavily. We need to wean ourselves off oil as soon as possible.

a1na2
12-17-2007, 05:42 AM
I think it's more than that, but even if you want to limit it to oil issues, remedying that isn't what I would call simple. Worldwide demand continues to grow, while the idiotic producers that have nationalized have underinvested in expanding, modernizing and maintaining their production capabilities for DECADES.

Iraq is at 2.5MM barrels per day now, representing something of a glass ceiling at the moment, and a significant improvement over the 1.7 or so they were at for a good while. Just STAYING at 2.5MM will be terrific.

The whole thing is a gigantic clusterf**k of the highest order. Nationalized oil is a nightmare for those of us who import heavily. We need to wean ourselves off oil as soon as possible.

Until the green people back off and let us drill on domestic sites we are not going to get away from the ME.

Alternative energy is too far away to have any immediate payback. There is also the issue of the big oil and big 3 controlling any vehicles that have any promise of reducing the dependence on oil.

Amnorix
12-17-2007, 05:58 AM
Until the green people back off and let us drill on domestic sites we are not going to get away from the ME.

While your point is valid, the price of oil, and the fact that domestic demand far exceeds production, won't be changed by whether or not they open the ANWR etc.

Alternative energy is too far away to have any immediate payback. There is also the issue of the big oil and big 3 controlling any vehicles that have any promise of reducing the dependence on oil.

Then buy Japanese. :shrug: The Big 3 and Big Oil have a helluva lot less control than they had in the 70s.