HOUSTON (Reuters) - Former U.S. Federal Reserve Chairman Alan Greenspan on Thursday said the U.S. economy is “clearly on the edge” of a recession.
Greenspan said the economy will continue to erode until there is a stabilization of U.S. housing prices.
“We have a long way to go” before housing prices hit a bottom, Greenspan told energy executives at the CERA conference.
High oil prices are dragging on the economy, but the fact that they haven’t done more damage shows its resiliency.
“It’s a burden now,” Greenspan said. He added that it’s “quite remarkable” that the U.S. economy is “able to do reasonably well” with oil prices near historic highs.
Crude oil futures hit above $95 a barrel on Thursday and went above $100 in early January.
Greenspan again — as he had last month — said that the likelihood of the U.S. economy going into recession was “50 percent or better.”
He said the U.S. economy was growing at “stall speed.”
“Stagflation is too strong a term for what we are on the edge of,” Greenspan said.
The subprime mortgage crisis would already have put the United States into recession if U.S. businesses weren’t healthy in part as the result of years of low interest rates, Greenspan said.
“If businesses weren’t in extraordinarily good shape, I have no doubt we wouldn’t be asking if we’re in a recession, but how long and how deep,” Greenspan said.
“Obviously, they (businesses) are not pushed for credit,” said Greenspan.
Banks have cut back lending and will continue tight controls on borrowing until housing prices backed by subprime mortgages stabilize, said Greenspan.
Greenspan made his comments in response to questions by Daniel Yergin, chairman of CERA.
Greenspan said he would like to see additional use of electric cars.
Nuclear power makes the “most sense” to increase U.S. power generation when all trade-offs are weighed, he said. “We have to use nuclear,” Greenspan said.
He said more discussion is needed before any “cap” is created as part of a U.S. cap-and-trade carbon program.
A carbon cap would likely lead to lower economic activity and higher unemployment if one were set before emissions-cutting technology is widespread, Greenspan said.
Greenspan said he doubted that technological advances will solve the problem of growing carbon dioxide emissions.
“If you don’t have a significant amount to trade, a lot of people won’t be able to trade and won’t have the energy they need,” Greenspan said.
Stagflation is a period when economic growth is stagnant but when prices rise. Recession is at least two quarters of negative economic growth.
Additional reporting by Erwin Seba in Houston; writing by Bernie Woodall; Editing by Gary Hill