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Last Updated: Monday, 17 December 2007, 10:13 GMT
Greenspan wants homeowners helped
Alan Greenspan
Mr Greenspan has been critical of current policy since he retired
The former chairman of the US central bank Alan Greenspan has called for government to give financial help for homeowners hit by the credit crunch.

He said direct government help would be a better political solution than fixing house prices or cutting interest rates.

Homeowners facing repossession might be helped directly through tax breaks or cash grants similar to those given to disaster victims, he said.

"Cash is available," Mr Greenspan told ABC's This Week programme.

"We should use that in larger amounts, as necessary, to solve the problems of the stress [of repossession]," he added.

Mr Greenspan also warned of the dangers presented by inflation at a time when the Federal Reserve is cutting rates to try to keep the US economy from sliding into a recession.

"Fundamentally, inflation must be suppressed," he said.

"It's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging."

The Federal Reserve has lowered its key interest rate three times since mid-September.

But inflation figures on Friday showed US prices rising at their fastest rate for two years.

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