Alan Greenspan was famously tightlipped and difficult to decipher during his long tenure as chairman of the Federal Reserve Bank. But he held forth on topics ranging from the employment picture to the future independence of the Fed in an appearance Sunday on NBC's Meet the Press.
Greenspan said he expects jobs "to come back fairly quickly" since frightened businesses cut costs to the bone at the depths of the recession and can now barely keep up with demand. Despite a pickup in job creation, he warned that unemployment rates could stay high as discouraged workers reenter the workforce. He added that 100,000 jobs were needed each month simply to keep up with U.S. population growth.Greenspan also cited the sharp equity rally since March as a key factor powering an economic recovery.
"People think stock prices are just paper profits. They are not," Greenspan said. "They create real purchasing power, and most importantly, they create a fluidity into the financial system."
Greenspan said 401(k) retirement accounts have gained half a trillion dollars while "5 trillion dollars of increased equity is pouring into the economy." Rising share prices have led to many positive developments in the economy ranging from increased stability in the banking sector to stronger recent retail sales, he said.
A Tale of Two Economies
But while banks may now be solvent, thanks to stock market gains, a credit crisis remains in play for small businesses, Greenspan said. He cited "two economies," comprising big businesses and wealthy individuals on the one hand, and struggling small businesses and the unemployed on the other.
As part of a discussion about the impact of health care reform, Greenspan said policymakers should focus on reducing uncertainty for businesses -- implying that health care legislation might dissuade employers from taking on new workers.
Greenspan said he was deeply concerned about recent rumblings out of Congress pushing for more oversight of the Federal Reserve Bank, warning that political involvement would compromise the central bank's judgment. Warned Greenspan: "What you will be getting is a monetary policy more dedicated to short-term political considerations."
Greenspan Sees a Jobs Rebound but also Lingering Tough Problems