Greenspan: Recession chances '50% or better'

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Fortune's Andy Serwer talks with former Fed Chairman Alan Greenspan about the credit crunch and what it means for the housing market. Play video

Alan Greenspan said Thursday there is at least a 50% chance that the United States will enter a recession.

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HOUSTON (CNNMoney.com) -- Former Federal Reserve Chairman Alan Greenspan said Thursday there's at least a 50% chance the United States will slip into recession, and that the storm clouds over the economy won't clear until home prices bottom out.

Greenspan, speaking at the Cambridge Energy Research Associates' annual energy conference in Houston, said that what may derail the economy are tightening credit markets and a potential slowdown in consumer spending sparked by defaults in the real estate market.

"We're clearly on the edge, it's 50% or better" chances the economy will slip into recession, he said.

If it weren't for the fact that business were so well-supplied with capital - thanks to the low interest rates over the last several years - he said the economy would already be in recession.

Greenspan said things won't look brighter until real estate prices stop falling and banks figure out how much money they lost - only then will they be willing to step up lending again.

He didn't say when that might be, but added "I think we've got a long way to go. This type of problem will fester."

On energy issues, Greenspan said the United States should embrace nuclear power to help solve its energy needs, called for greater use of electric cars, and said limiting carbon emission will be much more difficult and costly than most people realize.

Using electric cars - and cutting into the 11 million barrels of oil a day or so conventional vehicles use on U.S. roads - is one of the surest ways to reduce oil consumption and bring down oil prices, Greenspan said.

He was then asked where the electricity to power those cars should come from.

"Simple, they're going to have to use nuclear," the former central banker told Cambridge Energy chairman Daniel Yergin during an informal Q&A-style dinner discussion.

His response elicited cheers from the crowd, heavy with utility executives in this third day of the program that focused on power generation.

Tackling global warming and generating power with politicians talking about placing restrictions on carbon dioxide has been a reoccurring theme at the conference.

Greenspan said the issue will be much more costly and complicated than people think.

"It's a much more difficult problem than we like to talk about," he said. "I don't know whether there's been enough discussion on what we mean by a cap."

There are proposals in Congress to enact a cap and trade system for carbon dioxide, the main greenhouse gas. Under such a system, the government would issue permits to emit carbon, and the number of those permits would decline each year - hence the "cap". Industries could pay to install cleaner technology, or buy credits from those that did - hence the "trade" part of the equation.

"There's going to be a lot of people that can't produce because they can't use the energy they need," he said.

While acknowledging global warming is real and needs to be dealt with, he said they type of reductions people are talking about "can only occur with much lower levels of economic activity."

He said today's high prices are a burden on the economy, but that the lower ratio of oil use to economic activity has enable growth to continue despite oil near $100 a barrel.