Greenspan fears US government set for more debt stalemate

Alan Greenspan said the eurozone needed "consolidation politically"

Related Stories

Former US Federal Reserve Chairman Alan Greenspan has said that a repeat of the crisis that brought the country close to default is "perfectly conceivable".

He told the BBC that he had not seen another situation in Washington where "compromise" seemed so far away.

Mr Greenspan confessed to sympathies with the aims of the Tea Party, the Republican faction that fought the government during debt ceiling talks.

But the former central banker said the movement's tactics were "undemocratic".

Mr Greenspan, the most powerful figure in economic policy when he ran the Fed between 1987 to 2006, spoke to the BBC's Evan Davis ahead of publication of his new book, The Map and the Territory.

Start Quote

What Britain has done with its austerity programme has worked much better than I thought it would”

End Quote Alan Greenspan

In a wide-ranging interview to be broadcast on Radio 4's Today programme and the World Service's Business Daily, the former Fed chief had strong words for those who thought the eurozone crisis was over.

The crisis is likely to continue until the eurozone sees "consolidation politically. I think that's where we are going".

He said: "The culture of Greece is not the same as the culture of Germany, and to fuse them into a single unit is extremely difficult.

"The only way you can do it is by political union, like with East and West Germany, and even that is not working as well as it should be."

But he was optimistic about the UK's attempt to revive its economy.

'Shocked'

"What Britain has done with its austerity programme has worked much better than I thought it would," Mr Greenspan said.

"As far as I can judge, it [the economy] is coming out pretty much the way they [the coalition government] had expected."

Mr Greenspan also defended his record at the Fed against criticism that easy-credit policies and light-touch regulation had contributed substantially to the 2008 financial crash. He also declined to criticise the financial derivatives market.

He said: "One thing that shocked me is that not only did the Federal Reserve's very sophisticated model completely miss (the crash on) September 15th, 2008, but so did the IMF, so did JP Morgan, which was forecasting American economic growth three days before the crisis hit, going up all through 2009 and 2010."

There is a difference between predicting economic bubbles, and predicting when they might burst, he said.

Evan Davis and Alan Greenspan Mr Greenspan told Evan Davis that Chinese innovators should "think outside the box" more

He rejected suggestions that he was not clear enough in warning that the financial markets might be teetering on the edge of collapse.

However, his words of warning had to be couched very carefully in order not to unsettle the markets, he said. "I was very worried about what the impact would be."

'Worry'

Mr Greenspan, 87, who now runs his own consultancy business, also criticised a growing "crony capitalism" in the US.

He said: "Crony capitalism is essentially a condition in which… public officials are giving favours to people in the private sector in payment of political favours."

He said it was prevalent in China and Russia, but had not been common in the US or the UK. But he added: "I am beginning to worry that we are starting in that direction."

On China, he said that growth rates would begin to slow unless the country could be more innovative.

"One of the major problems with China is that its innovation is largely borrowed technology.

"There was a recent Reuters study where they listed the top 100 most innovative companies. Forty were American, none were Chinese.

"Chinese productivity is the highest in the world but the way they do it is by borrowing the technology from abroad, either by joint ventures or other means.

"What they are going to find, I suspect sooner rather than later, is that… unless they pick up innovation very specifically, their growth is going to slow down," Mr Greenspan said.

Part of the problem was that China remained a single-party state which was too conformist, and innovators there still did not "think outside of the box" enough.

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    ROCKET CRASHES 10:07:
    Rocket internet

    Oh dear. Shares in Rocket Internet have fallen up to 14% on their debut on the Frankfurt Stock Exchange. The Berlin-based internet firm owns a host of online businesses, including food delivery, taxi hailing and a fashion retailer. The share sale raised €1.4bn.

     
  2.  
    OFCOM BOSS LEAVES 09:56:
    Ed Richards, Ofcom chief executive

    Ed Richards is standing down as chief executive of Ofcom, the regulator of television, radio and internet services. Patricia Hodgson, Ofcom chairman, said: "Under his leadership, Ofcom has helped to deliver superfast broadband, 4G, lower prices, innovation, competition, and sustainable public service broadcasting in the UK."

     
  3.  
    WONGA 09:52:

    The Financial Conduct Authority is sending a message to the payday loan industry. Clive Adamson, director of supervision, said: "We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations. This should put the rest of the industry on notice - they need to lend affordably and responsibly."

     
  4.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: "FCA says did deal with Wonga requiring company "to make significant changes to its business immediately....should put industry on notice""

     
  5.  
    Via Twitter Neil Hume, Financial Times Commodities Editor

    tweets: "It's turning into a rout. Brent down 1.4% to $92.86 this morning in the wake of the latest Saudi OSPs [oil sales price] "

     
  6.  
    WONGA 09:21:

    Payday lenders like Wonga were criticised last year by the Office of Fair Trading for the number of times debt was rolled over, extending the amount of time a borrower has to repay, but also increasing the overall cost of the loan. Earlier this week, Wonga said 2013 profits fell by 53% to £39.7m due to "remediation costs" - money it had to pay back to customers as a result of its own mistakes.

     
  7.  
    WONGA 09:09: Breaking News
    Wonga logo

    Wonga will write off the debts of 330,000 customers who are in arrears of more than a month. Another group of 45,000 customers who have been in the red for less time can pay their debt without interest and charges. Wonga is doing this following "discussions" with City watchdog the FCA.

     
  8.  
    DOMINO'S PIZZA 08:58:
    pizza

    Shares in Domino's Pizza are up 2.2% after the fast food firm said third-quarter sales were up 12.9%. The company says it has been helped by a shift to online sales.

     
  9.  
    CONSERVATIVE CONFERENCE 08:37:
    Prime Minister David Cameron

    The Daily Telegraph is swooning over Prime Minister Cameron's conference speech. "Electrifying," is how it describes the PM's pledge to raise the 40p tax threshold. The Telegraph doesn't quite claim credit for the move, but does remind us that it has been campaigning for such a reduction.

     
  10.  
    MARKET UPDATE 08:27:

    The FTSE 100 is down 0.24% in early trading following a 1.4% loss for the Dow Jones in on Wednesday.

     
  11.  
    PARIS MOTOR SHOW 08:11: BBC Radio 4
    Discovery Sport

    Jaguar Land Rover has plenty to boast about at the Paris Motor Show. It has doubled sales volume and employment in five years. On Today Andy Goss, global sales director says that 80% of its output is exported. But to compete it has to build plants abroad, he says. A new plant opens in China at the end of this year and one in Brazil around a year later.

     
  12.  
    VIRGIN MONEY FLOAT 08:03: Via Email Kamal Ahmed BBC Business editor

    emails: "Virgin Money's announcement of its intention to sell a stake on the London stock exchange brings to an end another chapter in the sorry story of Northern Rock. The functioning bits of the bank, which spectacularly collapsed in 2007 and was bailed out in February 2008 with £1.4bn of tax payers' money, were bought by Sir Richard Branson and US investor WL Ross for £747m in 2011."

     
  13.  
    MARKET REPORT 07:50:
    Share price board, Tokyo

    It has been a shaky session for shares in Tokyo, the Nikkei 225 index closed 2.6% lower at 15,661. The Hang Seng in Hong Kong, which has fallen more than 9% since hitting a six-month peak in September amid pro-democracy protests, is closed for a public holiday.

     
  14.  
    Via Twitter BBC Radio 4

    tweets: "'Downgrade could follow Brexit' says Standard and Poor's Mortiz Kraemer @EthicalMan"

     
  15.  
    HEADLINES
     
  16.  
    LORD HILL 07:33: BBC Radio 4
    Lord Hill

    "He showed no grasp of the issues," is the verdict of Phillippe Lamberts, co-chair of the Greens in the EU parliament, on Lord Hill's appearance before European members of parliament on Wednesday. "Behind his charm there was apparently little knowledge of the subject matter at hand," Mr Lamberts said on Today.

     
  17.  
    VIRGIN MONEY FLOAT 07:26:

    So, will ordinary folk be able to buy shares in the Virgin Money offering? Not until they start trading. The offer is open to "certain institutional investors". Although they are giving staff £1,000 of shares apiece.

     
  18.  
    VIRGIN MONEY FLOAT 07:11:

    Virgin Money has announced details of its share sale. The firm hopes to raise £150m from the sale of about 25% of the bank, it said. If the sale is successful the Treasury will receive £50m, which was part of the deal when Virgin Money took over assets from Northern Rock.

     
  19.  
    ECB MEETING 06:57: BBC Radio 4
    Eurozone sign

    The European Central Bank (ECB) hosts its monthly meeting in Naples today, amid worries that the eurozone economy is deteriorating. "The ECB can buy time for governments to act... but it cannot generate lasting growth," says Moritz Kraemer from Standard & Poor's on Today. He says Europe needs to reduce the debt load of households, firms and governments.

     
  20.  
    PIMCO EXODUS 06:48: BBC Radio 4

    Investors have taken £14.5bn out of the investment firm Pimco since its founder Bill Gross resigned last week. Andrew Balls, chief global investment office at Pimco, says "it's calmed down very quickly though". The departure was not a huge surprise, he reckons. Mr Balls reminds listeners to Today that Mr Gross was 70 "and wouldn't be there [Pimco] for ever". Ouch.

     
  21.  
    PARIS MOTOR SHOW 06:40: BBC World News
    Rolls Royce chief executive, Torsten Muller-Otvos

    "We are on the roll ja," says the German chief executive of Rolls Royce Motor Cars, Torsten Muller-Otvos on World Business Report. He expects the company to have another record year. He is standing in front of a limited edition Rolls-Royce Phantom, only 20 were made and, sorry readers, they are all sold out.

     
  22.  
    SHARING ECONOMY 06:31: Radio 5 live

    What is the sharing economy? "The sharing economy defines the assets you own and skills you have" says Debbie Wosskow, chief executive of Love Home Swap on 5 live. (Are we clear now?) Customers need protection, but regulation needs to keep up with this emerging market, she says. She's writing a review into the sharing economy.

     
  23.  
    CONSERVATIVE CONFERENCE 06:17: Radio 5 live

    Lord Digby Jones, the crossbench peer and businessman is on 5 live after his appearance at the Conservative Party conference. He is worried people think money grows on trees, rather than coming from business, but also says business should mend its image: "I don't want chief executives paying themselves big bonuses [right now]. They may deserve it, but it sets a lousy example."

     
  24.  
    ARGENTINA 06:13: Radio 5 live
    President Cristina Fernandez

    The boss of Argentina's central bank has resigned. Juan Carlos Fabrega had been calling the government to tackle inflation and rein in spending. That created conflict with the nation's economy minister. The BBC's South American Business Reporter Katy Watson says the resignation doesn't make President Cristina Fernandez de Kirchner look good either.

     
  25.  
    PARIS MOTOR SHOW 06:07: Radio 5 live

    Jurgen Stackman, chairman of carmaker Seat is on Radio 5 live. Ten years ago electric vehicles were seen as the future, so what went wrong? Industry watchers were very optimistic about the speed of people picking them up, he says. Electric cars still have mileage and range limitations and families with one car don't want to rely on an electric car, he adds.

     
  26.  
    US SHARES SLIDE 06:00: BBC World News
    New York Stock Exchange

    There were sharp losses for US shares overnight. On World Business Report, Michael Hewson, chief analyst at CMC Markets reminds us that the US market has had a good run recently. But there is not much to be positive about at the moment, he says. The recent economic data from China and Japan has not been great. Traders are also preparing for higher interest rates in the US, Mr Hewson says.

     
  27.  
    06:00: Howard Mustoe Business reporter

    Good morning. You can get in touch via email bizlivepage@bbc.co.uk and on twitter @BBCBusiness

     
  28.  
    06:00: Ben Morris Business Reporter

    There were sharp losses for US shares overnight, so it will be interesting to see how Europe responds to that later. Plus we'll have reports from the Paris Motor Show. It should be a fun morning, so stay with us.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.