Greenspan: Credit crunch hitting economy

The credit crunch that has troubled financial markets in recent months will eventually take its toll on the U.S. economy, former Federal Reserve Chairman Alan Greenspan said on Wednesday.

Greenspan said house prices would almost certainly fall and that the slump will eventually prompt consumers to cut back spending. He was speaking at the World Business Forum in New York.

"When you get house prices flattening out, you begin to get pressures on consumption," Greenspan said.

He also said that rising stock prices could help offset the drop in the value of home equity.

Greenspan said on Sunday that the rate of U.S. economic growth was slowing, but the odds of a recession were less than 50 percent.

Concern that a credit crunch and financial market disarray could hit the U.S. economy prompted the Fed to cut interest rates sharply last month, even though it was unclear how serious any damage could be.

Separately, on Wednesday, Greenspan also said that demographic shifts will strain U.S. Medicare resources but that financing the Iraq war would have no long-term impact on those resources.

"We do not have the resources in any credible economic scenario to fulfill what is currently on the books as an entitlement 10, 15, 20 years from now," he said in an interview broadcast on CBC radio.

Greenspan said the cost of the U.S. war in Iraq would have no long-term impact on funding for Medicare, the health care financing program for the elderly. He said both political parties were afraid to confront the issue of Medicare's long-term solvency because of its political sensitivity.

He also said that not all of the Canadian dollar's rise to parity with the U.S. dollar was caused by U.S. dollar weakness.