Alan Greenspan Says Coming Recession Is Likely

Greenspan: "The sheer amount of world trade that currently flows through that region, and the number of semiconductors fabricated by Taiwanese firms upon which the technologies we enjoy rely, make any conflict [between China and Taiwan] a potential nightmare scenario". Image | Donald Standeford.

By Donald Standeford, SJ Founder/Publisher
January 06, 2023 08:00 am UTC
Modified: 2023-01-06 08:00 am

UNITED STATES - Former Federal Reserve Chairman Alan Greenspan says that he believes that a coming recession is the "most likely outcome" of the recent spate of interest rate hikes by the Federal Reserve to curb inflation. He also spoke of a possible Black Swan Event if China decided to invade Taiwan.

Regarding the possibility of a Black Swan Event Greenspan said, "The black swan event I think markets, and really the world at large, ought to be most worried about is some kind of conflict erupting between China and Taiwan".

He said that the reason for this is that "The sheer amount of world trade that currently flows through that region, and the number of semiconductors fabricated by Taiwanese firms upon which the technologies we enjoy rely, make any conflict [between China and Taiwan] a potential nightmare scenario".

The Federal Reserve raised interest rates seven times in 2022 in response to fears of increased inflation. Although the recent interest rate hikes were meant to reverse the direction that the U.S. economy was headed, Greenspan said that he does not think that the hikes will reverse the course enough to avoid an economic recession.

Rates Probably Won't Be Decreased Due To Inflation Risk, At Least Mild Recession Expected

"I don’t think it will warrant a Fed reversal that is substantial enough to avoid at least a mild recession," he said, and added that wage increases and employment, “still need to soften further for a pullback in inflation to be anything more than transitory".

Greenspan said that he does not believe that the Federal Reserve will decrease the interest rates in the near future because "inflation could flare up again and we would be back at square one".

He added, "Furthermore, this could potentially damage the Federal Reserve’s credibility as a purveyor of stable prices, especially if the action were seen to be taken merely to protect the stock market rather than in response to truly unstable financial conditions".

Greenspan did say, however, that he does not believe 2023 will be as volatile as 2022 was, and said "I do not expect 2023 to be as volatile. We went from a Federal Reserve that expected inflation to be transitory to one that deemed seven consecutive rate increases over ten months necessary to tamp down inflation… Add in the massive amount of uncertainty generated by the war in Ukraine and I believe 2022 would be a tough year to top with respect to market volatility".

Alan Greenspan Comments On Cryptocurrency And The Recent FTX Collapse

Regarding the collapse of the cryptocurrency exchange FTX, he said "Based on the information that has come to light so far, the collapse of FTX was not a result of lax risk management, inadequate accounting procedures, or some feature inherent to crypto–it was purely fraud."

Regarding what he thinks of cryptocurrency, he said "I view the asset class as too dependent on the Greater Fool Theory to be a desirable investment."