Greenspan sees early signs of U.S. stagflation

Greenspan sees early signs of U.S.
stagflation
The U.S. economy is showing early signs of
stagflation [1] as growth threatens to stall [2]
while food and energy prices soar.

Greenspan said low inflation was a major
contributor to economic growth and prices must
be held in check. We are beginning to get not
stagflation, but the early symptoms of it.
Fundamentally, inflation must be suppressed.

The U.S. central bank has lowered its benchmark
[3] interest rate three times since mid-September
as a housing downturn, tightening credit
conditions, and steep food and energy prices
threaten to push the U.S. economy into recession.

But cutting rates can have the unwanted side
effect of pushing up prices, so the Fed finds itself
in a tricky[4] position of trying to revive growth
without spurring inflation.

Last week, U.S. data showed that wholesale
inflation rose at the highest rate in 34 years, while
consumer prices rose the most in more than two
years.

Greenspan repeated his assessment that the
probability of a U.S. recession had moved up
toward 50 percent but noted that corporate
America's debt levels were in good shape, which
should help cushion the blow from tightening
credit terms.
Greenspan also said real estate prices will stabilize
only when the overhang [5] of unsold
new-construction homes begins to ease, and
estimated that financial losses could be in the
range of $200 billion to $400 billion as securities
tied to failing subprime [6] mortgages lose value.

[1] Stagflation=Sluggish economic growth
coupled with a high rate of inflation and
unemployment.

[2] To stall = To halt

[3] Benchmark = Something used for comparing
and measuring other things.

[4] Tricky = Difficult to deal with

[5] Overhang = Hang over something

[6] Subprime lending, B-paper, near-prime,
or second chance lending is the practice of
making loans to borrows who do not qualify for
the best market interest rates because of their
deficient credit history. Subprime lending
encompasses a variety of credit instruments such
as subprime mortgages.

SOURCE Greenspan sees early signs of U.S.
stagflation Reuters Dec 16, 2007