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Sat, Mar 10, 2007 - Page 10 News List

Greenspan speeches pack unwanted punch


During the 18 years that Alan Greenspan was chairman of the US Federal Reserve (Fed), he scrupulously avoided forecasting recessions.

Now it seems he cannot stop using the "R word," and that has created headaches for his successor, Ben Bernanke.

Greenspan delivered a speech via satellite to an investor group in Hong Kong last week in which he said it was possible that the US could be in a recession by the end of this year.

Those comments, coming from a man who gained near-legendary status for his forecasting acumen as Fed chief, were blamed for contributing to a 416-point plunge in the Dow Jones industrial average on Feb. 27.

Greenspan then gave another speech, this time to investors in Tokyo, in which he sought to modify his earlier remarks by saying that "it is possible we could get a recession toward the end of this year, but I don't think it's probable."

He has also given a couple of media interviews since the market plunge, seeking to elaborate on his recession concerns, including one in which he put the risk of a downturn this year at "one-third."

All of this from a man who spent nearly two decades at the Fed making sure never to raise the possibility of a recession out of concern that such talk, by jolting confidence, could turn into a self-fulfilling prophecy.

Greenspan came up with his famously opaque speaking style as a way of avoiding direct answers to tough questions, answers that could have gotten in the way of his desire to project the most optimistic views possible about the economy.

In his first year as chairman, Bernanke has gotten praise for avoiding Greenspan's habit, but he definitely errs on the side of optimism, in case markets are jolted by too pessimistic an assessment from the Fed chief.

Testifying before Congress on Feb. 28, the day after the market's big fall, Bernanke said that markets had been functioning well and he had not seen anything in recent economic data to alter his view for "moderate growth going forward."

Bernanke earned good marks for his calming words during his first market crisis, but that effort was blunted by Greenspan's remarks, leaving economists to wonder what Greenspan was up to.

"I don't think this was aimed at deliberately undercutting Chairman Bernanke, but Greenspan's comments certainly haven't made Bernanke's job any easier," said David Jones, head of DMJ Advisors and the author of four books on the Greenspan Fed.

Jones said he believed that Greenspan, 81, who has spent a lifetime forecasting the economy, was simply getting back to his first love -- studying the economic data and making predictions.

"This is Greenspan being Greenspan. His favorite pastime is forecasting the economy," Jones said.

Since leaving the Fed, Greenspan has been delivering speeches for money to private groups and working on a book due out in September, titled Age of Turbulence.

In an interview last week with the Wall Street Journal, Greenspan said in his appearances he had avoided answering "any questions which refer directly to monetary policy, what the Fed is doing or what it should do."

Until last week, Greenspan had been largely successful in keeping his views out of the headlines after a bad experience just days after leaving the Fed last year when he roiled markets with comments he made at a private event for a small number of clients of Lehman Brothers.

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