Tuesday, 18 December 2007
The former chairman of the US central bank Alan Greenspan has called for government to give financial help for homeowners hit by the credit crunch and said that low inflation was a major contributor to economic growth and prices must be held in check.
He warned against any sort of government bailout plan for homeowners that interfered with the normal functioning of markets for home prices or interest rates, saying it would ''drag this process out indefinitely.'' Offering cash to stricken homeowners instead would cause less long-term damage, he said.
"Cash is available," said Mr Greenspan. "We should use that in larger amounts, as necessary, to solve the problems of the stress" he added.
Mr Greenspan also warned of the dangers presented by inflation at a time when the Federal Reserve is cutting rates to try to keep the US economy from sliding into a recession.
"Fundamentally, inflation must be suppressed," he added. "It's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer-term period."
Greenspan said real estate prices will stabilize only when the overhang of unsold new-construction homes begins to ease, and estimated that financial losses could be in the range of $200 billion to $400 billion as securities tied to failing subprime mortgages lose value.
The U.S. central bank has lowered its benchmark interest rate three times since mid-September as a housing downturn, tightening credit conditions, and steep food and energy prices threaten to push the U.S. economy into recession.
Greenspan wants government to help homeowners
He warned against any sort of government bailout plan for homeowners that interfered with the normal functioning of markets for home prices or interest rates, saying it would ''drag this process out indefinitely.'' Offering cash to stricken homeowners instead would cause less long-term damage, he said.
"Cash is available," said Mr Greenspan. "We should use that in larger amounts, as necessary, to solve the problems of the stress" he added.
Mr Greenspan also warned of the dangers presented by inflation at a time when the Federal Reserve is cutting rates to try to keep the US economy from sliding into a recession.
"Fundamentally, inflation must be suppressed," he added. "It's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer-term period."
Greenspan said real estate prices will stabilize only when the overhang of unsold new-construction homes begins to ease, and estimated that financial losses could be in the range of $200 billion to $400 billion as securities tied to failing subprime mortgages lose value.
The U.S. central bank has lowered its benchmark interest rate three times since mid-September as a housing downturn, tightening credit conditions, and steep food and energy prices threaten to push the U.S. economy into recession.
BUSINESS NEWS
UBS bank lost 10 Billion in subprime crisis The real estate credit over 50 years Iran and China sign a giant oil contract US Subprime Losses May Reach $300 Billion Refinancing can be difficult to enjoy
Home | About Us | Contact Us | Terms of Use | Privacy Policy