Finance »The great irony of success«

One of the costs of a stable economy is that it often generates bubbles: Alan Greenspan speaks about the banking crisis, the risk of a recession in the US and the rise of East Asian countries. An Interview

DIE ZEIT: Can the right monetary and fiscal policy keep the US out of a recession?

Alan Greenspan: Probably not. Global forces can now override most anything that monetary and fiscal policy can do. Long-term real interest rates have significantly more impact on the core of economic activity than the individual actions of nations. Central banks have increasingly lost their capacity to influence the longer end of the market. Two to three decades, ago central banks were dominant throughout the maturity schedule. Thus, the more important question is the direction of long-term real interest rates.

ZEIT: It is more difficult for the Federal Reserve to react to turbulences than it was 20 years ago?

Greenspan: Absolutely. The resources of central banks relative to the size of global forces have markedly diminished. We have 100 trillion dollars of arbitragable long-term securities in the world today so that even large movements initiated by central banks have little impact. Until the seventies, central banks and finance ministries were able to hold exchange rates fairly stable. Since then, the ability to intervene in the exchange markets and stabilize the rates has gone down very dramatically. And that is also true for other financial markets. Global forces fostering global equilibrium have become by far the most dominant influence for financial and economic activity. Governments have ever less influence on how the world works.

ZEIT: Is the US on the brink of a recession, or has the recession already begun?

Greenspan: Very difficult to tell. While I believe the odds of a recession are 50 percent or better, there is as yet little evidence that we have moved into one. Recessions are characterized by discontinuties, often sharp changes in employment and production. With the exception of a few such events in the last three weeks there are not enough of them to say the regime has really changed. I think that it probably will, but the evidence says, it has not yet.

ZEIT: If the US goes into a recession, will the rest of the world still grow? Do we see a decoupling of the economic development in the US and that in the other major countries?

Greenspan: In the long run probably yes. But not in the intermediate period. Financial markets have recently behaved as if there has been no decoupling at all. You can see the impact of the US slowdown in export markets in Asia, Europe, and elsewhere. This is an interactive process, not just influenced by the US. But there is no question that the force of demand in the United States still has a significant impact on the rest of the world. It is unlikely a U.S. recession will create global recession. But the rate of world economic growth should slow down quite markedly.