From: Axel Bugge, Reuters
Published October 3, 2007 03:42 PM

Greenspan says odds of recession a third to half

LISBON (Reuters) - The odds of a recession in the United States is between a third and a half due to the credit crisis sparked by problems in the subprime mortgage sector, former Federal Reserve chief Alan Greenspan said on Wednesday.

"I think the odds of a recession in the U.S. is somewhere between a third and a half," Greenspan said at a conference in Lisbon. "The most likely scenario is a slowing down of economic growth in the U.S."

Greenspan said last week that he saw the chances of a recession in the United States at less than 50/50.

Greenspan said the credit crisis was beginning to dissipate in spite of large losses reported by leading banks this week.

"We are beginning to see the frenzy calm down," he said. "Unless we get secondary effects the worst is over."

Among risks that could worsen a U.S. downturn were the wider consequences of large declines in house prices, he said. 

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Asked about foreign exchange markets, Greenspan replied it was extremely difficult to predict what would happen to the dollar and euro in the next 18 months, adding that the dollar's decline was driven by interest rate differentials.

"We have very little capability to project exchange rates over the next 18 months," he said.

Questioned about the possibility of central bank intervention to change exchange rates in the currency market, he replied: "(The market is) very large and I am not sure that a central bank or a group of central banks have the resources."

The euro hit $1.4281 on Monday, the highest level since the euro was launched in January 1999. In the last year the euro has risen by over 10 percent against the dollar and European officials are beginning to voice concern about the dollar's decline.

Greenspan said the world now had two currencies that were international stores of value -- the dollar and the euro.

"There is no fear that one will fade," he said, adding that there is room for more than one major currency.

Greenspan said that equity markets had begun to anticipate the end of the credit crisis, when asked about the apparent contradiction of U.S. stocks reaching record highs this week at the same time that large banks reported big losses.

"Equity markets are forecasting what will happen in the credit markets. Rightly or wrongly," he said. "It's what stock markets do, they anticipate, sometimes they're right, sometimes wrong."

"The question is, is the equity market right?"

(Additional reporting by Ruben Bicho and Sergio Goncalves)

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