The US recovery from the 2008 financial and economic crisis has been disappointingly tepid, and the government activism in the process may lead to the opposite direction of a broad-based recovery, said Alan Greenspan, the former Federal Reserve chairman, on Tuesday.
“What is most notable in sifting through the variables that might conceivably account for the lackluster rebound in GDP growth and the persistence of high unemployment is the unusually low level of corporate illiquid long-term fixed asset investment,” Greenspan wrote in a paper which he presented at the Washington- based think tank Council on Foreign Relations on Tuesday.
He noted that as a share of corporate liquid cash flow, the investment is at its lowest level since 1940. This contrasts starkly with the robust recovery in the markets for liquid corporate securities.
He said that the illiquidity aversion can be explained mostly by the shock of vastly greater uncertainties embedded in the competitive, regulatory and financial environments faced by businesses since the collapse of Lehman Brothers in September 2008, deriving from the surge in government activism.
“The current government activism is hampering what should be a broad-based robust economic recovery, driven in significant part by the positive wealth effect of a buoyant US and global stock market,” said Greenspan, who was widely criticized for his loose regulation on the financial market after the crisis broke out in the fall of 2008.
Pledging to take lessons of the financial crisis, the Obama administration has launched a series of major reforms aimed to strengthen regulation on market.