Greenspan Says Economy's Hit Bottom

Washington, DC, Aug. 3, 2009--Growth may resume at a rate faster than most economists foresee, former Federal Reserve Chairman Alan Greenspan said Sunday.

“We may very well have 2.5 percent in the current quarter,” Greenspan said in an interview today on ABC’s “This Week” program.

“The reason is there has been such an extraordinarily high rate of inventory liquidation that the production levels are well under consumption.”

The U.S. economy contracted at a better-than-expected 1 percent annual pace in the second quarter, the Commerce Department reported last week Stabilization of housing markets and consumer spending, a lessening of financial turmoil and increased government spending all suggest the longest recession since the 1930s may be close to ending.

“I’m short-term optimistic, but with many caveats,” the former Fed chairman said. Housing markets have “stabilized temporarily” though it is “possible” the economy might relapse if there is a further slide in home prices of more than about 5 percent. If prices dropped by 10 percent or more, “that would create a major acceleration in foreclosures,” Greenspan said.

“I don’t think it’s going to happen, but I do think it is possible that we could get a second wave down,” he said. “But the important issue is that if we don’t, and I think the probability is that we won’t, that we are close to stabilization.

“I’m pretty sure we’ve already seen the bottom,” Greenspan said.