Greenspan sees end to house boom

Mr Greenspan has been outspoken since leaving the Fed

Alan Greenspan has said the turmoil in credit markets was an "accident waiting to happen", and has also warned of much higher UK inflation in future years.

Inflation would rise above 3% on a regular basis, putting pressure on interest rates, and the UK housing boom would soon come to an end, he said.

He said it was too early to say if the current financial crisis would be more damaging than that seen in 1998.

"This has not fully played out," he told the Daily Telegraph.

Inflationary pressures

Bank governor Mervyn King was forced to write a letter to the Treasury earlier this year explaining why inflation had risen above 3%, well above the government's 2% target.

Mr Greenspan said this would become a more regular occurrence as the Bank had to deal with the prospect of higher inflation and higher interest rates.

There's going to be more correspondence between the Chancellor and Mervyn King Alan Greenspan Has your loan been affected?

"There's going to be more correspondence between the Chancellor and Mervyn King," he said. "Markets are going to start turning round and inflationary pressures are going to start to build."

On house prices, Mr Greenspan said the UK market was vulnerable because of the large number of variable-rate mortgage holders.

"The housing thing has not turned yet and the consumer households are more subject to interest rate changes than in the US.

"It is going to turn. It has got to turn because it is not projectable."

Pressure is building on Mr Greenspan's successor, Ben Bernanke, ahead of the Fed's crucial decision on interest rates on Tuesday.

'Weak link'

Most experts believe the Fed will cut rates in an effort to restore confidence to the financial markets as the scale of the current crisis in the sub-prime mortgage market unfolds.

"Sub-prime in the US was the weak link in our system," Mr Greenspan added.

"There was an accident waiting to happen. If it wasn't sub-prime, it would have been something else."

Mr Greenspan reiterated previous remarks that a recession in the US was a possibility while adding that the economy was currently "holding up".

"It is possible the stability in the underlying economy in the US and the world at large is such that ultimately this financial crisis defuses like a hurricane which hits land and all of a sudden runs into the mountains."