Greenspan Ties Recession to Length of War

Alan Greenspan, chairman of the Federal Reserve Board, says the United States could have a deep and long recession if the Persian Gulf War lasts beyond the middle of April, it was reported today.

Greenspan told the New York Times in an interview conducted before President Bush’s State of the Union address Tuesday that he expected a quick recovery from the current recession if the war is “relatively short” and if the oil fields in the Gulf do not suffer serious damage.

“But if you get beyond three months, you begin to risk consumer confidence erosion and that would abort any meaningful recovery,” Greenspan said.

In testimony before Congress last week, Greenspan was more optimistic, suggesting the economic consequences of the war most likely would be minimal.

He repeated his view that the Fed might have to take steps soon to make banks more willing to lend money to credit-worthy customers.

The length and severity of the current recession depends almost entirely on what happens in the Gulf and if banks can be persuaded to lend money more freely, Greenspan said.

The newspaper said Greenspan seemed to be saying Bush did not threaten the economy by going to war but that the economy might be damaged if the war lasted long enough that people became worried about the outcome.

Greenspan said his assessment last week that the worst of the recession could be over and he expected the recovery to start by the summer was based mainly on the assumption that the war would be short.