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Greenspan: Recent Decline 'Typical' of Recovery
Former Federal Reserve Chairman Alan Greenspan said that the recent stock market decline is “typical” of a recovery, and that international instability has more to do with the recent decline than problems in the United States.
“What we’re looking at is an invisible wall, which we’ve run into here. Which, essentially, as far as I can see, is a typical pause that occurs in an economic recovery,” Greenspan said in an interview with CNBC. “Ordinarily we’re saying that the stock market is driven by economic events, I think it’s more in the reverse.”
“I will grant you that this is not a normal economic recovery. We’ve just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen,” he said.
“This recent decline is more international than it is a domestic affair,” he said, adding that “there is an inherent instability in the euro system.”
The lack of hiring is due to businesses being shocked by the collapse and dramatically pulling back on spending, Greenspan said.
“There is clearly a short term fear factor involved,” he said. “People don’t want to hire because they’re terribly concerned they have to let them go. The average work week has been going up which is another way of telling you that they’re more intensively using what they got before they’re hiring.”
The hiring that has occurred has been by larger companies, and the current recovery is “dominated by large banks, higher income individuals and bigger business,” Greenspan said. In past recoveries, small businesses have typically done most of the hiring and start to pull the the economy out of a recession, he said.
The ADP Employer Services report released Wednesday, for example, showed that large and medium sized businesses with over 50 employees reported an increase in hiring in June, while small businesses with fewer than 50 workers reported a decrease.
One of the reasons that small businesses are not hiring, Greenspan said, is because smaller banks are loaded up with commercial loans and aren’t lending. “Small business is in real serious trouble,” he said.
In the far ranging interview, Greenspan said that raising the capital gains tax in the US would be ill advised. He also added that the financial crisis could not have been foreseen.
“It is just not feasible to forecast a financial crisis,” he said. “A financial crisis by definition is a sharp abrupt, unexpected decline in asset prices.”
© 2010 CNBC.com
Former Federal Reserve Chairman Alan Greenspan said that the recent stock market decline is “typical” of a recovery, and that international instability has more to do with the recent decline than problems in the United States.
“What we’re looking at is an invisible wall, which we’ve run into here. Which, essentially, as far as I can see, is a typical pause that occurs in an economic recovery,” Greenspan said in an interview with CNBC. “Ordinarily we’re saying that the stock market is driven by economic events, I think it’s more in the reverse.”
“I will grant you that this is not a normal economic recovery. We’ve just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen,” he said.
“This recent decline is more international than it is a domestic affair,” he said, adding that “there is an inherent instability in the euro system.”
The lack of hiring is due to businesses being shocked by the collapse and dramatically pulling back on spending, Greenspan said.
“There is clearly a short term fear factor involved,” he said. “People don’t want to hire because they’re terribly concerned they have to let them go. The average work week has been going up which is another way of telling you that they’re more intensively using what they got before they’re hiring.”
The hiring that has occurred has been by larger companies, and the current recovery is “dominated by large banks, higher income individuals and bigger business,” Greenspan said. In past recoveries, small businesses have typically done most of the hiring and start to pull the the economy out of a recession, he said.
The ADP Employer Services report released Wednesday, for example, showed that large and medium sized businesses with over 50 employees reported an increase in hiring in June, while small businesses with fewer than 50 workers reported a decrease.
One of the reasons that small businesses are not hiring, Greenspan said, is because smaller banks are loaded up with commercial loans and aren’t lending. “Small business is in real serious trouble,” he said.
In the far ranging interview, Greenspan said that raising the capital gains tax in the US would be ill advised. He also added that the financial crisis could not have been foreseen.
“It is just not feasible to forecast a financial crisis,” he said. “A financial crisis by definition is a sharp abrupt, unexpected decline in asset prices.”
© 2010 CNBC.com
