Greenspan denies regulators were unaware

The former chairman of the US Federal Reserve warned today that the danger of a US recession had risen following the turmoil in the global credit market and he denied that regulators were caught unawares by the problems which caused the global credit crunch.

Veteran economist Alan Greenspan said the chance of a downturn was still less that 50%, but conceded he was 'less optimistic than one would like'.

In an interview with BBC Radio 4's Today programme, Mr Greenspan said it was inevitable the house price bubble would burst and said central banks such as the Bank of England had no control over 'real' interest rates.

He said: 'The danger of recession has obviously risen, but my judgement, and looking at the forecasts of most American economists, is that it's still less than 50/50'.

However, he said 'it's less optimistic than one would like'.

But he said he was not about to forecast a 'significant recession' in either the USA or the UK economy.

On the current financial market turmoil sparked by a collapse in the risky US mortgage sector, Greenspan said he had little sympathy for the hedge fund community which was 'presumably the largest culprit' behind it.

He said: 'We did know what was going on and the reason we didn't stop them was that to a large extent these types of questionably egregious actions are taken by people who have their own money invested.'

He wasn't concerned at seeing these wealthy investors' net worth dwindle, he said , but argued that their role in greasing the wheels of the global financial system is still crucial and beneficial.

'The key aspect of finance is to create a movement of a nation's savings into productive, physical assets which produce productivity,' he said.

Mr Greenspan also predicted that the era of low inflation was coming to an end.

'I'm not really able to pinpoint the time but I'm reasonably confident that the inflation tranquillity that we have experienced throughout the world actually for the last 20 years is not something we can hope to readily replicate as we move into the future.'