WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan said on Tuesday the U.S. economic recovery was “extremely unbalanced,” driven largely by high earners benefiting from recovering stock markets and large corporations.
Small businesses and the jobless are still suffering from the aftermath of a credit crunch that was “by far the greatest financial crisis, globally, ever” — including the 1930s Great Depression, said Greenspan in an address to a Credit Union National Association conference.
“It’s really an extraordinarily unbalanced system because we’re dealing with small businesses who are doing badly, small banks in trouble, and of course there is an extraordinarily large proportion of the unemployed in this country who have been out of work for more than six months and many more than a year,” said Greenspan, who headed the Fed from 1987 to 2006.
With both housing starts and auto sales “dead in the water,” he said he thought it would be difficult to make the case that the economy is poised for a strong rebound.
Greenspan did see signs pointing toward a modest recovery in job creation, saying that staffing levels at U.S. firms, which were deeply cut, remain below what is sustainable in the long run. But unemployment rate could still remain stubbornly high.
“The reason why the unemployment rate is going to be sticky is that as soon as employment starts picking up, a lot of the people who have not been seeking jobs are going to come back into the labor force, and they will keep the official unemployment rate in the 9 percent area, something like that,” Greenspan said.
He also said it was important for U.S. policy makers to prevent perceived expectations of inflation that could push up yields on long-term U.S. Treasury securities, which would raise mortgage interest rates and prevent a recovery in the housing market.
The 10-year Treasury yield is the “one statistic that I watch every morning and every afternoon,” he said.
Reporting by David Lawder; Editing by Leslie Adler