Greenspan: This Is Not a Normal Recovery

Alan Greenspan
Alan Greenspan

Even Alan Greenspan admits that this is not a normal economic recovery, and traditionally immune small businesses are taking the brunt of the downturn.

The former Federal Reserve Chairman, offering a wide-ranging interview on CNBC today, said the U.S. economy is leaning more heavily on large banks and wealthy individuals to drive the recovery. Typically, the rebound starts with small businesses expanding and hiring more workers.

"People don't want to hire because they're concerned they may have to let them go," said Greenspan, in his typical slow, professorial delivery, a sharp contrast to the hyped-up CNBC style. "Small business is in real, serious trouble."
The Small Business Administration estimates that roughly half of Americans are employed by small businesses. This week, Senate Democratic leaders introduced a much-delayed small business job bill.

It calls for exclusion of small business capital gains, increasing SBA loan limits, establishing a small business lending fund and tax benefits.

"Every day, headline after headline goes to big business layoffs and losses, but in reality it is the small businesses and their employees that are bearing the brunt of this crisis," said Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu (D-La.). "Since the start of the economic downturn, 80% of the country's job losses came from small businesses."

Greenspan said small businesses are suffering from a short term "fear factor" and pointed to longer average work weeks, showing that small businesses are focusing on their existing employees before going out to find new ones.

Complex Connections, Lots of Pressure

Greenspan also shared his view that stock prices are a leading economic indicator that affect other traditional indicators. For instance, a down market will keep businesses from hiring more workers, in turn impacting the jobs report. This is also reflected in the summer's lagging consumer confidence reports and dim job and income outlooks.

He is seeing for the first time how closely the U.S. markets are tied to international markets, and how if one falls, they all fall. And the current instability in the euro zone countries is keeping a lid on all the other markets. Then, there's China, "which is running into obvious problems."

"I will grant you that this is not a normal economic recovery. We've just come out of what I believe is the most extraordinary and virulent global financial crisis that the world has ever seen," he said.

"I don't know where the end game is but something has got to give here," said the former Federal Reserve chairman who served from 1987 to 2006. As far as Europe goes, "One possibility is there are fewer members of the monetary union."

He said there are "major pressures" working against the euro, but he's not saying it would be easy to untangle one or several countries from the monetary union. He admitted that he was a skeptic of the union, but it worked. Whether it continues to work is the big questions, he added.