FRED WATKINS / ABC News
Former Federal Reserve Chairman Alan Greenspan
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Greenspan advises against more stimulus
Unemployment will top 10% "for a while," he says.
WASHINGTON - The federal government should not consider a new stimulus package, even with U.S. unemployment likely "to penetrate the 10 percent barrier and stay there for a while," former Federal Reserve Chairman Alan Greenspan said.
"The focus has got to be on trying to get the economy going, but you also have to be careful that in trying to do too much you can actually be counterproductive," Greenspan said on ABC's This Week yesterday.
He appeared on ABC two days after the Labor Department reported an unemployment rate of 9.8 percent, the highest since 1983.
The report prompted President Obama to say he was working to "explore any and all additional" measures to spur growth.
Third-quarter economic growth is likely to be 3 percent and "possibly even higher," Greenspan said. Only 40 percent of the $787 billion economic-stimulus package approved in February has been disbursed, he said.
"It's far better to wait and see how this momentum that's already begun to develop in the economy carries forward," he said, recommending instead an extension of unemployment benefits.
Sen. Charles Schumer, a New York Democrat, said on the ABC program that the Senate expected this week to debate an extension of unemployment benefits "by another 12 or 13 weeks" in states where the jobless rate exceeds 8.5 percent, and by four weeks in other parts of the country.
The House passed a similar extension on Sept. 22, 331-83.
He, too, said lawmakers should focus on providing targeted assistance, including tax credits for first-time homebuyers, while the remaining 60 percent of the $787 billion stimulus package is spent.
Greenspan said that although last week's unemployment report was "pretty awful no matter how you looked at it," the economy was recovering and it would be "premature" for Obama and Congress to enact another stimulus package.
"We are in a recovery, and I think it would be a mistake to say the September [unemployment] numbers alter that significantly," he said.
The "silver lining" to the unemployment numbers is that companies cut jobs expecting the economy to get worse than it did after the September 2008 bankruptcy of Lehman Bros. Holdings Inc., Greenspan said.
U.S. firms "laid off a very substantial number of people to the point that the actual hours worked fell even more than the economy," and this "can't continue," Greenspan said.
Still, to stop unemployment from rising, the economy needs to add jobs at a rate of "more than 100,000 a month," the former Fed chief said, adding that he was "particularly concerned" about the number of people unemployed six months or longer.
The Labor Department's September report said 5.44 million people have been unemployed for 27 weeks or longer, a 9 percent increase over August.
Greenspan said he was worried that people "out of work for very protracted periods" would lose their skills, which would be an "irretrievable loss" to the economy.
Though Republicans may be willing to support extended unemployment benefits and homebuyer incentives to reduce housing inventories that are "dampening the recovery," they are likely to oppose another stimulus package, Sen. John Cornyn, a Texas Republican, said on the same program.
"There are things we need to do to help people who need help, like unemployment benefits and the like, but I think throwing more money at the problem and racking up more and more debt for our children and grandchildren to pay is not the answer," Cornyn said.
