Greenspan: ‘We’ve already seen the bottom’

By Evan Harris

Aug 2, 2009 11:52am

Tons of news today from my exclusive interview with Alan Greenspan.  The former Fed chairman told me he's "pretty sure we've already seen the bottom." 

Greenspan listed a number of reasons for his positive outlook, citing upward production trends in several industries and the recovery of the financial system. 

"There's been a very significant improvement in the financial system and it's been the financial system where the problems have been," he said.

When I asked him about the possibility of a collapse, Greenspan responded, “Collapse now, I think, is off the table.” 

When he last appeared on “This Week” in September 2008, the economy was in the midst of the financial crisis which Greenspan then called a "once-in-a-century type event."

This morning, he told me that the U.S. economy had gotten past the crisis.

"We were teetering for awhile,” he said, “but I do think that the TARP program, for example, was very helpful in shoring up the capitals, that stock of banks and the like.  And not an insignificant event is the $3.5 trillion increase in the stock market value of American corporations.

Now, he says business inventories are so depleted that he anticipates a sharp turnaround in growth.

"It strikes me that we may very well have 2.5 percent in the current quarter," he said. 

That would be significant because it would be near the level necessary to ease huge job losses. 

“The unemployment rate is going to continue to rise," Greenspan told me, "but more slowly than it’s been.”

There's one caveat to this, however.  Housing prices, he said, must remain stable. 

"If you get another dip and a renewed decline in prices, we're going to run into an acceleration of a number of homes that are less than the debt,” he said. “If that happens — and, clearly, looking at the structure of where debt and values, it would, if, for example, home prices fell by 10 percent or more — that would create a major acceleration in foreclosures."

– Inflation:  Greenspan worried that current Fed Chair Bernanke's estimate of having a couple years before reigning in inflation may be too optimistic.  “I hope they have a couple years,” he said.  “I don’t think they do.”

– Health Care:  He asserted that health care reforms could reduce the deficit, but “it is not adequate to be strictly revenue neutral because there is a lot more that needs to be done.”

– Taxes: Greenspan endorsed the proposal for a value-added tax put forth by former Clinton Deputy Treasury Secretary Roger Altman.  “I don't like a value-added tax but I agree with Roger.  I think that there is a fairly significant probability that the least worst solution to the problem will end up to be a value-added tax, quantities without significantly impacting on the economy.”

– Cash for Clunkers:  With the House voting to increase funding for the program, Greenspan expressed support for program.  “I have qualms about the concept, but there is no doubt that that very extraordinary response is a very important indicator that the state of confidence in the economy is beginning to pick up.”

- George Stephanopoulos

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