From the July 2008 issue of Boomer Market Advisor • Subscribe!

July 1, 2008

Would someone (respectfully) tell him to shut up?

The U.S. is still more likely than not to have a recession despite the relative economic stabilization in recent weeks, Alan Greenspan recently told the Financial Times.

The former chairman of the Federal Reserve told the paper in late May: "I still believe there is a greater than 50 percent probability of recession." But, he said, "That probability has receded a little and I think the probability of a severe recession has come down markedly."

His comments come as a counter to the increasing optimism in some quarters, the Times says. In the several months, most economists have scaled back their estimates of the chances for a U.S. recession following a better-than-expected jobs report and stronger business activity surveys. Many now think the U.S. will narrowly dodge outright economic contraction.

The former Fed chief also told the paper it was "too soon to tell" whether the worst of the financial crisis was over, as this would depend on what happened to house prices.

Greenspan estimates that house prices will fall by another 10 percent from their February levels, for a total peak-to-trough decline of roughly 25 percent. If the economy is weak and the market overshoots, house prices could decline by another 5 percent, the paper quotes him as saying.

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