Greenspan: Decline In US Housing Prices Not Over

The decline in housing prices in the U.S. is not yet over, former Fed chairman Alan Greenspan said Saturday during a stop on his book tour in Amsterdam.

There is a large access of unsold inventory, Greenspan said, because building has continued despite decreased home sales. "We have never experienced anything remotely close to this," Greenspan said about the downturn in the U.S. housing market. Greenspan, who chaired the Fed for 18 years until early 2006, denied criticism that interest rate cuts during his tenure could be a source of the current subprime crisis in the U.S. Greenspan Saturday estimated the chance of a recession in the U.S. as between "one in three" and "one in two." The former Fed chair also expects an increase in volatility of the equity markets. Although declining to comment on current Fed policy under his successor, Ben Bernanke, Greenspan did say that "it is not as easy as it used to be to cut interest rates," pointing to the danger of inflation. "When I was chairman, inflation was not a problem," Greenspan said. "It is far more today." Central banks in general, including the Fed, the European Central Bank and the Bank of England, are losing the capability to effect long-term inflation rates, according to Greenspan. "An inflation rate of 1% to 2% can only be maintained through higher interest rates. I regret that politicians make this difficult to achieve," said Greenspan. Greenspan also strongly backed the Bank of England, which has recently come under criticism in the U.K. over its handling of the Northern Rock bank run, saying the BoE is a "very sophisticated institution." He added that its governor, Mervyn King, is one of the best central bankers in the world. With regard to the European Union, Greenspan commented that overall economic structures should be far more flexible to be able absorb demographic changes in the labor market, with many people retiring.