Alan Greenspan: Stimulus hurt recovery

By Jennifer Liberto, senior writer


WASHINGTON (CNNMoney.com) -- Massive government intervention to save the economy is to blame for the lagging recovery, Former Federal Reserve Chairman Alan Greenspan said Tuesday.

Greenspan argued for less government intervention to get the recovery rolling and businesses investing in equipment and plants.

"What we need to do now is to calm down; let things move by themselves," he said at a forum at the Council of Foreign Relations. "And indeed the rate of activism has decreased significantly and the ratio of capital flow has inched back up."

Some economists blame Greenspan, who served as Fed chair from 1987 to 2006, for keeping interest rates too low for too long and for failing to sound the alarm that Wall Street was over-leveraged and running wild.

But with Republicans in control of the House, Greenspan's views are starting to gain an audience again. Many Republicans share his opinion that intervention has created uncertainty and deterred private sector investing.

Greenspan targeted deficits created by the $787 billion 2009 Recovery Act as the main culprit behind the current sputtering recovery.

Why are deficits to blame?

Greenspan said the Treasury Department's borrowing "crowds out" companies from finding similarly low interest rates to borrow funds for capital investments on equipment and plants.

At the same time, he acknowledged that America's biggest and most-trusted companies aren't having trouble finding good interest rates. But smaller companies, he said, are struggling.

"Microsoft is not being crowded out," Greenspan said. "It's those who find an 8% or 9% interest rate, which are required of junk bonds and small businesses, which is too high."

He said he estimates that government borrowing is effectively reducing long-term capital investment by one fifth.

His concern over deficits is why Greenspan argued last year for the expiration of the Bush-era tax breaks he once championed.

But Greenspan goes further in his criticism of government intervention, also blaming housing programs for having delayed and prolonged foreclosures. He said such efforts have created uncertainty about when the housing market will hit rock bottom, at which point speculators can rush in and start buying up houses.

"Speculators are essential to the process of stability and recovery," he wrote recently in a column published in International Finance. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,150.37 176.06 1.04%
Nasdaq 4,565.46 16.23 0.36%
S&P 500 1,992.68 10.38 0.52%
Treasuries 2.30 -0.02 -0.86%
Data as of 1:31pm ET
Company Price Change % Change
Facebook Inc 74.30 -1.56 -2.06%
Bank of America Corp... 17.02 0.03 0.18%
Intel Corp 32.78 -1.14 -3.35%
Apple Inc 106.99 -0.35 -0.33%
Avon Products Inc 10.04 -0.92 -8.39%
Data as of 1:16pm ET

Sections

An annual federal government census found about 578,000 homeless individuals nationwide, down about 2% from last year. More

The case from the Federal Trade Commission is its first against an online dating site. More

San Francisco-based Tumml is an accelerator fostering 'urban impact start-ups' that aim to tackle civic problems -- and turn a profit. More

Amy Kukec thought leaving her abusive husband would be the beginning of a new life, but so far she's hit one debilitating financial roadblock after another. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.