The current economic downturn is “likely temporary,” former Federal Reserve Chairman Alan Greenspan said Monday, noting that the worst of the housing market slump is likely past.
“The economy is obviously going through a significant slowing period, which as best I can tell is more than likely temporary,” Greenspan said during a question and answer session at the annual Charles Schwab Impact conference in Washington.
Greenspan said that while the housing market is not out of the woods yet, the current slump may not worsen.
“I think that while we are past most of it there are a lot of negatives ... but it is no longer subtracting from the (gross domestic product) growth,” the former Fed chairman said.
For the broader economy, Greenspan offered tempered optimism, citing strong profit margins and capital goods data that are “showing some potency.”
“It’s hard to envisage those two key factors coming at the beginning of a recession,” he said.
Greenspan also touched on the potential adjustment in loan costs for home buyers with nontraditional mortgage products.
While some individual buyers may feel the pinch as their payments rise, Greenspan said those changes were “very unlikely to have a macroeconomic effect.”
At the far edges of the economic outlook Greenspan talked about the need for overhauling Social Security and Medicare.
The former Fed chairman was generally sanguine about the prognosis for Social Security, saying “there are 15 or 20 alternate solutions as to how that particular shortfall can be made up.”
Greenspan said that a group of nonpartisan policy makers could broker an effective solution for the Social Security shortfall in a mere “15 minutes.” In fact, it would take that long only because the first 10 minutes would be devoted to pleasantries, Greenspan added.
Medicare, on the other hand, presents a far thornier problem, Greenspan said, in part because the potential future cost is far more variable for medical expenses than for Social Security.
At the same time, a growing segment of the population will be retiring, placing an even greater burden on a smaller work force to produce even more.
Given these coming changes, Greenspan said he was fearful the government was doing something it shouldn’t be, namely “promising more than we could deliver.”
He also warned that the problem cannot be fixed solely with higher taxes, and would require some significant reworking of the benefits programs themselves.
So far, politicians have shown little inclination to tackle those root issues, Greenspan said: “I have seen no willingness on the part of anyone to touch that and I think that’s frankly irresponsible.”