Mr Alan Greenspan former chairman of US Federal Reserve said in a speech to Economic Club of New York that the current global recession will surely be the longest and deepest since the 1930s and more government rescue funds are needed to stabilize the US financial system. He added that "To stabilize the American banking system and restore normal lending, additional TARP funds will be required."

He said that US Treasury's Troubled Asset Relief Program designed to help bail out banks has been partially successful. Despite his prognosis on the current downturn, he said that the pace of economic deterioration cannot persist indefinitely.

However, he reiterated that a housing recovery is a necessary condition for the end of the financial crisis and said that the prospect of stable home prices remains many months in the future. He added that the stock market, meanwhile, is being suppressed by a degree of fear not experienced since the early 20th century.

He said that the real test of fiscal stimulus is whether it primes the pump for private demand. He added that the Federal Reserve's myriad emergency lending programs and the Treasury's TARP funds have the potential of being unwound eventually without leading to inflation or great cost to the taxpayer.

He added that "At the first signs of stabilization and a flattening of the unemployment rate, I presume the Federal Reserve will start to rein in much of its credit extension. However, Congress is likely to strongly object to any tightening of credit prior to full employment being restored. Policy reversals on the fiscal front are nearly certain to meet stiff resistance."

Mr Greenspan said that "Even with the breakdown of self regulation, the financial system would have held together had the second bulwark against crisis, our existing regulatory system functioned effectively. But under crisis pressure it, too, failed. We need not rush to reform. Private markets are imposing far greater restraint at the moment than would any of the current sets of new regulatory proposals."

(Sourced from www.reuters.com)