U.S. Recession More Likely, Greenspan Says

by: Susan Lerner

The odds of the U.S. moving into a recession are now about equal, according to former Federal Reserve Chairman Alan Greenspan. "The probabilities of a recession have moved up to close to 50 percent -- whether it's above or below is really extraordinarily difficult to tell. I think that's correct," he said on ABC's "This Week" program. In early November, Greenspan had said the chances of recession were less than 50-50 and on Dec. 13 he said the economy was "getting close to stall speed." And Greenspan isn't alone. "The economy is weakening rapidly. I'm at 45% probability of recession and it is rising," said Kurt Karl, chief U.S. economist for Swiss Re.

Greenspan also said he favored a government bail out for homeowners who could lose their homes because they can't make their mortgage payments. "Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this," Greenspan said. "It's far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it'll drag this process out indefinitely." It's better, he said, that the selling exhaust itself, saying that preventing the selling "just merely prolongs the agony." Treasury Secretary Henry Paulson has pledged no government funds, but rather has negotiated an interest rate freeze on some subprime mortgages in an attempt to help as many as 1.2M homeowners avoid foreclosure. More bad news on the housing sector is expected this week, as economists expect November housing starts to fall 3.3%.

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