Former Fed Chairman Alan Greenspan is warning that by the end of the year that the economy could slip into recession.
“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 one bit of good news is that Greenspan notes that there appears to be little evidence that the downturn in the U.S. housing market is spilling over into the rest of the economy. So the possibility of a recession, while real, may not be that large at this time.
UPDATE (James Joyner): What always concerns me in these cases is the risk of self-fulfilling prophecy. Greenspan’s former position guarantees that he’ll be taken seriously and his pronouncements might influence potential investors. His talk of “irrational exuberance” and “housing bubbles” almost surely had a part in those events coming to pass.
