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Greenspan: Don't Be Frightened by Recent Stock Plunge

By    |   Thursday, 01 Jul 2010 03:51 PM

The recent stock market drop is nothing to get too upset about, says former Federal Reserve Chairman Alan Greenspan.

The Standard & Poor’s 500 Index has slipped 15 percent from its April 23 high, to 1,029.

“What we’re looking at is an invisible wall which we’ve run into here,” Greenspan told CNBC.

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“That essentially is a typical pause that occurs in an economic recovery. Ordinarily we’re saying that the stock market is driven by economic events, (but this time) I think it’s more in the reverse.”

That’s because Europe’s debt crisis sparked the downward move by stocks.

“This recent decline is more international than it is a domestic affair,” Greenspan said.

He said there “is an inherent instability in the euro system.”

The euro dropped 15 percent in the first half of the year amid concern about the mushrooming debt burden in Greece, Portugal and Spain.

As for the U.S., “I will grant you that this is not a normal economic recovery,” Greenspan said.

“We’ve just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen.”

Economic growth already has slowed from last year, to an annual rate of 2.7 percent in the first quarter. And the unemployment rate remains stubbornly high at 9.7 percent.

Businesses, shocked by the financial collapse, are sharply cutting back their spending, including hiring, Greenspan says.

“There is clearly a short-term fear factor involved,” he said.

“People don’t want to hire because they’re terribly concerned they’ll have to let them go. The average work week has been going up, which is another way of telling you that they’re more intensively using what they’ve got before they’re hiring.”

Those who have done hiring are big businesses, including banks, and wealthy individuals. Normally it’s small businesses that lead the way in job creation during the early stages of a recovery, Greenspan notes.

He opposes increasing the capital gains tax, because those gains, when spent, are crucial for economic growth. “Capital gains have very significant economic consequences,” Greenspan said.

Not everyone is as sanguine as the ex-Fed chairman over the stock market’s dip.

“This is definitely a more dangerous market,” Howard Silverblatt, an analyst for S&P, told The New York Times. “We are getting closer to a bear market.”

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The recent stock market drop is nothing to get too upset about, says former Federal Reserve Chairman Alan Greenspan. The Standard Poor s 500 Index has slipped 15 percent from its April 23 high, to 1,029. What we re looking at is an invisible wall which we ve run into...
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2010-51-01
Thursday, 01 Jul 2010 03:51 PM
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