Former Fed chief Alan Greenspan is warning that the US might end up in a recession by the end of 2007.

Greenspan said that while it would be “very precarious” to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

The U.S. economy grew at a surprisingly strong 3.5 percent rate in the fourth quarter of 2006, up from a 2 percent rate in the third quarter. A survey released Monday by the National Association for Business Economics showed that experts predict economic growth of 2.7 percent this year, the slowest rate since a 1.6 percent rise in 2002.

Greenspan also warned that the U.S. budget deficit, which for 2006 fell to $247.7 billion (€191.2 billion), the lowest in four years, remains a concern.

It should be interesting to see how this may be used during the coming presidential elections. If a recession does indeed begin to show it’s face by late ‘07 or early ‘08, it may make it difficult for Republicans to mount a formidable campaign, as democrats would blame the recession on our current administration. When Clinton was in office, he got a lot of mileage out of the growth of the US economy, and many average Americans credited him with it, even though the economy had begun its turnaround a full year before he took office.

To be clear, so far there isn’t a single candidate I’m aware of (in any party) that I would vote for. I’m just saying it will be interesting to see who gets blamed for the recession if it comes.

Greenspan also said:

…the U.S. and global economies are far more resilient to economic and financial shocks. Rather than predict when the next shock would occur, policymakers should create an environment where economies are capable of absorbing unforeseen events, he said.

I wish he had elaborated on that note. Perhaps he did, and the article just doesn’t include those remarks, but given Greenspan’s market-friendly career, it’s likely he meant an environment of free and open markets. I think that, combined with a fairer, flatter system of taxation and an extreme overhaul of congressional spending would make things more resilient overall.

Bottom line: When citizens have their money in the bank, as opposed to in their government’s coffers, they can respond much more quickly to any unforeseen event.