Greenspan Warns of Likely U.S. Recession

[Calabrio]

Greenspan Warns of Likely U.S. Recession
Monday February 26, 8:34 am ET
Alan Greenspan Warns That U.S. Economy May Slip Into Recession by End of Year

HONG KONG (AP) -- Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end.

He said the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.

Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

The U.S. economy grew at a surprisingly strong 3.5 percent rate in the fourth quarter of 2006, up from a 2 percent rate in the third quarter. A survey released Monday by the National Association for Business Economics showed that experts predict economic growth of 2.7 percent this year, the slowest rate since a 1.6 percent rise in 2002.

Greenspan also warned that the U.S. budget deficit, which for 2006 fell to $247.7 billion, the lowest in four years, remains a concern.

"The American budget deficit is clearly a very significant concern for all of us that are trying to evaluate both the American economy's immediate future and that of the rest of the world," he said via satellite at the VeryGC Global Business Insights 2007 Conference.

Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market.

"We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said.

 

[MAC1]

I don't know what it is with these recession predictors but it seems they all want to be able to say "I told you so" should their prediction come true. The economy is cyclical so let's just sit back and stop with the foolish predictions. It seems there is more of a negative impact on the economy caused by propagandist negative economic predictions than the economy itself.

 

[fossten]

It's BUSH's fault!!!

 

[Calabrio]

Greenspan is probably not saying this political reasons, I suspect that it was pretty matter of fact. Anyone with even the most elementary understanding of economics knows that it's cyclical. At best, the goal is to manage the depth and length of the recession, but it can't ever be avoided.

Sadly, most people don't have that elementary understand.. That's why President George H.W. Bush wasn't reelected in 1992.

 

[Marcus]

Greenspan is probably not saying this political reasons, I suspect that it was pretty matter of fact. Anyone with even the most elementary understanding of economics knows that it's cyclical. At best, the goal is to manage the depth and length of the recession, but it can't ever be avoided.

Sadly, most people don't have that elementary understand.. That's why President George H.W. Bush wasn't reelected in 1992.

So the recession of 2001 was Clinton's, but the upcoming one is just a natural cycle?

 

[fossten]

So the recession of 2001 was Clinton's, but the upcoming one is just a natural cycle?

Nice try. Clinton took credit for the economic recovery in 1993, which had already started before he was elected. Under THAT logic, we conservatives have always countered that if he takes credit for a recovery that preceded him, he must also take blame for a recession that came after.

HOWEVER, Tommy, your ignorance of even recent history is astounding. The fact that we had a recession in 2001 (which I am not sure you can prove actually was a recession in the cyclical sense of the word) was mainly affected by (drum roll please) 9/11, and everybody except you knows that. Now, if we take this logic a little further, and place the blame for 9/11 where it rightfully belongs, namely 95% of it on Clinton's shoulders, you can come to the logical conclusion that the 2001 "recession" was Clinton's.

 

[Calabrio]

So the recession of 2001 was Clinton's, but the upcoming one is just a natural cycle?

Usually the term "Clinton Recession" is used to clarify that the economic slow down had begun BEFORE Bush took office in Jan of 2001. Then it was made much worse by the terrorist attacks.

 

[Calabrio]

Bernanke upbeat on economy

By Associated Press | February 15, 2007

WASHINGTON -- Federal Reserve chairman Ben Bernanke offered a mostly upbeat assessment of the economy yesterday, citing improvements in inflation and housing in comments suggesting the Fed will leave interest rates alone for a while.

Wall Street liked the message and propelled stocks sharply higher. The Dow Jones industrials gained 87.01 points to close at a new high of 12,741.86.

Bernanke said that at present, interest rates are at a level that is "likely to foster sustainable economic growth and a gradual ebbing of core inflation."

"Overall, the US economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes," Bernanke said as he delivered the Fed's economic report for the first time to a Democrat-controlled Congress.

The Fed has held a key interest rate steady at 5.25 percent since August, giving borrowers a reprieve.

Before that, the central bank steadily had raised rates for two years, the longest ever stretch of increases, to fend off inflation.

Many economists said Bernanke's testimony to the Senate Banking, Housing and Urban Affairs Committee buttressed their belief that the Fed will continue to hold rates steady for much of this year.

Still, Bernanke was not prepared to declare victory over inflation yet. Thus, he did not close the door on the possibility of further rate increases ahead.

The Fed chief was careful to hedge his bets and pointed out risks that could upset the generally good economic outlook.

One is that inflation might flare, which is why the Fed is keeping open the option of a rate increase.

It will "be some time before we can be confident that underlying inflation is moderating as anticipated," Bernanke said.

If inflation does not wane as the Fed expects, policy makers are "prepared to take action," he said.

On the other hand, there is the risk that a deeper than expected residential real estate bust could yet unfold, which could hurt overall economic growth, Bernanke said.

A former college professor, Bernanke marked his one-year anniversary at the Fed on Feb. 1.

 

[MAC1]

Well, Greenspan's recession speech in Hong Kong triggered China's sell off, which triggered a worldwide sell-off, which triggered the Dow's 416-point plunge--the biggest since September 20, 2001. Prior to today, the Dow was experiencing its longest uninterrupted gains since 1929. So, there you have it--proof that pundits and crystal ball gazers like Greenspan can influence the market with a mere mention of possible bad news to come.

Now, take Greenspan's influence on the market and multiply it's power via the mass media and there lies the most potent and potentially damaging political tool, which can be used to sway public opinion, influence public policy and sway market forces both positively and negatively. This is where Bush earns significant credit regarding his steadfast resolve to implement tax cuts despite the relentless negative diatribe from the liberal-left. I tend to think should a cyclical downturn take place later this year it will not be as bad due to the groundwork laid by the tax cuts. However, if democrats should raise taxes chances are there will be a sharper cyclical downturn and possibly a recession.

In other words, leave Bush's tax cuts alone.

 

[Joeychgo]

In other words, leave Bush's tax cuts alone.

For now at least, I think we have to.

But, what about the ever increasing national debt? What do we do about that? 9 trillion dollars -

 

[Calabrio]

For now at least, I think we have to.

But, what about the ever increasing national debt? What do we do about that? 9 trillion dollars -

Increasing taxes does not equate to greater tax revenue.

Even with increased tax revenue, you can't address the national debt until you can reduce spending. That's not happen. The Republicans have shown a lack of fiscal restraint and the Democrats don't even pretend to be interested in doing any such thing - unless it means cutting defense spending.

 

[Joeychgo]

Even with increased tax revenue, you can't address the national debt until you can reduce spending. That's not happen. The Republicans have shown a lack of fiscal restraint and the Democrats don't even pretend to be interested in doing any such thing.

I agree completely with this part - Although the war is certainly taking its toll on the debt as well, so some of it is understandable, but we have to get things under control. Even GW didnt go nuts with spending until 9-11 - we didnt cut anything but taxes when the cost of war, terror, etc all came to be.

Ultimately, you know, taxes will have to be increased at some point.

 

[MonsterMark]

I agree completely with this part - Although the war is certainly taking its toll on the debt as well, so some of it is understandable, but we have to get things under control. Even GW didnt go nuts with spending until 9-11 - we didnt cut anything but taxes when the cost of war, terror, etc all came to be.

Ultimately, you know, taxes will have to be increased at some point.

Why? Please explain why tax rates need to be increased. I'm very curious.

Couple of thoughts from the White House site so of course it is all bunk...
+++++++++++++++++++++++++++++++++++++++++++++
Business investment in new equipment began to accelerate shortly after the President signed the 2003 tax relief bill, and businesses began hiring again soon thereafter as economic prospects brightened. From August 2003 to the end of the year employment rose by a half million jobs, and from August of 2003 through December of 2006 employment was up by 7.2 million after revisions. In 2006 alone, employment grew by about 2 million jobs, pushing the unemployment rate down to a very low 4.5 percent. Meanwhile, real business fixed investment increased at annual rates of 5.9 percent in 2004, 6.8 percent in 2005, and over 9 percent annualized through the third quarter of 2006.

As countries have found across the globe and across time, significant deficit reduction is never easy. On the receipts side, governments face the choice of pursuing pro-growth policies to generate higher tax receipts, or raising taxes and sacrificing some degree of their economic growth. This Administration has chosen to pursue pro-growth policies, and they have worked. Along with steady growth in output and incomes, we have seen remarkable growth in Federal tax receipts. In 2004, tax receipts rose 5.5 percent. In 2005, tax receipts rose 14.5 percent, the largest one year growth in receipts since 1982. In 2006, tax receipts rose another 11.8 percent.


Massachusetts...
Massachusetts has set a new record for tax revenue, and that is renewing calls for an income tax reduction. The Department of Revenue says tax collections for the fiscal year that ended last month were nearly 18.5 billion dollars.




That's an 8.2% increase over the prior fiscal
year, and it's a record high for the state.

Revenue Commissioner Alan LeBovidge big increases were seen in income tax collections, especially those associated with investment
income. He says corporate tax revenue also was way up.

David Tuerck, head of the Beacon Hill Institute at Suffolk University, says the record revenue is proof that the Legislature can afford to cut the income take to 5%.

In 2000, voters approved a gradual income tax rollback from 5.9% to 5%. But in 2002, the Legislature froze the rate at 5.3% percent.

 

[Calabrio]

Actually, I don't "know" that. Ultimately spending has to be cut.

Ultimately, ENTITLEMENTS have to be cut. They account for the MAJORITY of government spending.



US deficit is shrinking, for now
With the robust economy, tax revenues are pouring in. But rising costs lie ahead.
By Mark Trumbull | Staff writer of The Christian Science Monitor

Despite the ongoing costs of US military campaigns in Iraq and Afghanistan, the outlook for the federal budget has grown substantially brighter.

Tax revenues are rising much faster than spending, according to Treasury Department numbers released last week. The recent trend is strong enough that, were it to continue, the budget could move into surplus in barely a year, one economist calculates.

Already, the federal deficit is shrinking toward about half the size that it has averaged since 1970, when analyzed as a percentage of gross domestic product.

The shift reflects a strong economy, with higher incomes and corporate profits generating a bigger flow of tax revenue. In turn, the Treasury's progress could help the economy by buoying investor confidence in the nation's fiscal position.

Although it is a welcome change, the improvement does little to stave off the long-run challenges to the nation's financial health, many economists say. Baby boomers are starting to retire, placing new demands on government. Costs for healthcare programs like Medicare are still projected to rise faster than overall inflation.

"The picture is getting brighter," and if there's no recession over the next several years "there are going to continue to be some good strides made," says Mark McMullen, a senior economist at Moody's Economy.com in West Chester, Pa. But "it's unlikely that we're going to see a balanced budget anytime in the near or long term."

Some experts say the budget could achieve balance in the short run of the next few years. In unveiling its proposed budget this month, the Bush administration forecast black ink on the federal ledger in 2012. The nonpartisan Congressional Budget Office (CBO), in its recent annual outlook, also shows a surplus for that year.

A year ago, the CBO's forecast for the 2007 fiscal year called for a deficit of $270 billion. In the annual outlook released last month, the 2007 gap is projected at $172 billion.

"Right now, we're in some sense in a relatively good spot," says Jim Horney, a budget analyst at the Center for Budget and Policy Priorities, a liberal think tank in Washington. "We're in the sixth year of an economic expansion," a time when federal revenues often rise along with a growing economy.

But both the CBO and the White House make important assumptions that are far from assured.

The CBO's annual outlook assumes that President Bush's tax cuts phase out in 2010 as scheduled, thus adding new tax revenues.

Mr. Bush's budget calls for the tax cuts to be made permanent, but foresees a surplus in 2012 thanks to a sharp fall in Iraq spending and robust productivity growth in the economy.

But several issues are unsettled. Among them: How much will military operations in Iraq and elsewhere cost? Will Congress make some of the Bush tax cuts permanent? Will Congress scale back the alternative minimum tax (AMT), which is poised to take a rising tax toll on middle-class Americans in the years ahead?

The answers will have a big impact on the budget, and may not be resolved before a new president takes office in 2009.

The long-term outlook remains sobering, all sides agree. The cost of Medicare, in particular, is slated to soar due to healthcare inflation and an aging population.

Even the near-term outlook comes with an asterisk. When Bush took office in 2001, the CBO was forecasting a decade of budget surpluses totaling more than $5 trillion. Then came a recession, the terrorist attacks of 9/11, and enormous wartime spending. The Bush tax cuts helped to stimulate the economy, but at the cost of lower tax revenue.

"We had three years where revenues went down," says Mr. Horney. "All that has happened is that we have ... caught up from the really bad decline that we had."

Still, analysts say the recent budget gains are good news for the government and the economy.

The budget deficit now stands at about 1.4 percent of the nation's GDP, well below the 2.3 percent that's been the norm since 1970, according to economist Michael Darda of MKM Partners in Greenwich, Conn. "At the current pace, the budget could move back into surplus as early as May 2008," Mr. Darda wrote in a report to clients last week.

That isn't a forecast, but it shows how the nation's fiscal health is closely related to that of the overall economy.

A more stable budget outlook, in turn, has benefits for the economy.

The less money the government has to borrow to pay its bills, the more is left for investment in new goods and services. Alternatively, the nation will be less reliant on foreign lenders to fund that investment – debt that siphons away a portion of national wealth.

"Unexpectedly strong revenue growth" has improved the outlook quite a bit, says Mr. McMullen.

In the CBO projections, for example, the nation's public debt is forecast to fall from 37 percent of GDP in 2006 to 30.5 percent of GDP in 2012.

In the longer run, the rise of entitlements such as Medicare could force difficult choices to keep that debt from rising again.

Conservatives say it will be vital to contain costs. "If nothing changes in Washington then both revenues and spending will be higher," says Chris Edwards, a tax expert at the libertarian Cato Institute in Washington. "It'll hammer the economy," he says, as government takes a larger share of GDP.

Others say the answer will probably involve tax hikes as well as some reductions in promised entitlement benefits – and that a modest increase in taxes need not damage economic growth.

Both sides agree on the need to tame medical inflation, if not on how to do it.

"If we were able to reduce the growth of the cost of healthcare," says Horney, "that would definitely be good for the economy."

Ultimately, you know, taxes will have to be increased at some point.

Actually, I don't "know" that. Ultimately spending has to be cut.

Ultimately, ENTITLEMENTS have to be cut. They account for the MAJORITY of government spending.

 

[MAC1]

Regarding entitlements, democrats have a plan: If they win in '08, Joey will get his tax increase but along with that there will likely be huge growth in entitlements including some kind of national health care coverage. Remember, democrats criticized Bush's prescription drug plan, but should Hillary be elected they will all say how wonderful she is for giving Americans government sponsored health care coverage.

So, remember these days of economic prosperity fondly because if democrats have their way it will all be nothing but a distant memory.

 

[fossten]

I agree completely with this part - Although the war is certainly taking its toll on the debt as well, so some of it is understandable, but we have to get things under control. Even GW didnt go nuts with spending until 9-11 - we didnt cut anything but taxes when the cost of war, terror, etc all came to be.

Ultimately, you know, taxes will have to be increased at some point.

Joey, please explain to me why taxes have to be increased. The military portion of the entire fiscal federal budget is only around 15%. Most of the rest is entitlement programs.

Stop robbing the rich and giving to the unwilling to work and we'll solve our national debt problem. Abolish most of the Federal agencies and we'll have fewer spending issues.