- The Washington Times - Friday, March 9, 2007

During the 18-1/2 years Alan Greenspan was chairman of the Federal Reserve, he scrupulously avoided forecasting recessions. Now, it seems he can’t stop using the word, and that has created headaches for his successor, Ben S. Bernanke.

Mr. Greenspan delivered a speech via satellite to an investor group in Hong Kong last week in which he said it was possible that the United States could be in a recession by the end of this year.

Those comments, coming from a man who gained near legendary status for his forecasting acumen as Fed chief, were blamed for contributing to a 416-point plunge in the Dow Jones Industrial Average on Feb. 27.

Mr. Greenspan then gave another speech, this time to investors in Tokyo, in which he sought to modify his earlier remarks by saying that “it is possible we could get a recession toward the end of this year, but I don’t think it’s probable.”

He has also given a couple of press interviews since the market plunge, seeking to elaborate on his recession concerns, including one in which he put the risk of a downturn this year at “one-third.”

All of this from a man who spent nearly two decades at the Fed making sure never to raise the possibility of a recession out of concern that such talk, by jolting confidence, could turn into a self-fulfilling prophecy.

Mr. Greenspan developed his famously opaque speaking style as a way of avoiding direct answers to tough questions, answers that could have gotten in the way of his desire to project the most optimistic views possible about the economy.

In his first year as chairman, Mr. Bernanke has been praised for avoiding Mr. Greenspan’s habit of obfuscation, but he definitely errs on the side of optimism, lest markets be jolted by too dour an assessment from the Fed chief.

Testifying before Congress on Feb. 28, the day after the market’s big fall, Mr. Bernanke said that markets had been functioning well and he had not seen anything in recent economic data to alter his view for “moderate growth going forward.”

Mr. Bernanke earned good marks for his calming words during his first market crisis, but that effort was blunted by Mr. Greenspan’s remarks, leaving economists to wonder what Mr. Greenspan was up to.

“I don’t think this was aimed at deliberately undercutting Chairman Bernanke, but Greenspan’s comments certainly haven’t made Bernanke’s job any easier,” said David Jones, head of DMJ Advisors and the author of four books on the Greenspan Fed.

Mr. Jones said he thought that Mr. Greenspan, 81, who has spent a lifetime forecasting the economy, was simply getting back to his first love — studying the economic data and making predictions.

“This is Greenspan being Greenspan. His favorite pastime is forecasting the economy,” Mr. Jones said.

Since leaving the Fed, Mr. Greenspan has been delivering speeches for money to private groups and working on a book due out in September titled “Age of Turbulence.”

In an interview last week with the Wall Street Journal, Mr. Greenspan said in his appearances he had avoided answering “any questions [that] refer directly to monetary policy, what the Fed is doing or what it should do.”

Until last week, Mr. Greenspan had been largely successful in keeping his views out of the headlines after a bad experience just days after leaving the Fed in 2006 when he roiled markets with comments he made at a private event for a small number of clients of Lehman Brothers.

Published reports say Mr. Greenspan is usually paid $150,000 for his speaking engagements. To keep from being a competing voice to his successor, he has provisions in his speaking contracts that reporters can’t be admitted and no recordings of the event can be made.

Those restrictions, while keeping Mr. Greenspan’s comments more private, also work to the advantage of the investors who are putting up big bucks for the appearances by making the time with Mr. Greenspan more exclusive.

Analysts contend that it is naive for Mr. Greenspan to think that his views, especially on such hot-button topics as recessions, won’t quickly gain a wider audience.

“Greenspan is entitled to make a living, but even when he thinks his comments are not on the public record, they will be because people will talk,” said Lyle Gramley, a former Fed governor who is now with Schwab Washington Research Firm, an economic consulting firm.

Among economic forecasters, Mr. Greenspan’s views on a possible recession are mainstream. His one-in-three probability is only slightly more pessimistic than the 20 percent to 25 percent chance of a downturn that other forecasters are using.

But other forecasters, who have not been Fed chairman, think Mr. Greenspan may have learned from this recent episode and may more carefully chose his words for his next speaking engagement.

“I think Mr. Greenspan miscalculated on the amount of attention he would get,” said Mark Zandi, chief economist at Moody’s Economy.com. “I think he will go back under the radar screen for awhile and allow Mr. Bernanke to have more time to establish his own forecasting credentials.”

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