WASHINGTON -- Rising energy prices are pushing up inflation and increasingly threatening the US economy, former Federal Reserve chairman Alan Greenspan testified yesterday.
He called for speedily developing alternative energy sources such as ethanol and liquefied natural gas.
In his first appearance on Capitol Hill since he ended his nearly 19-year Fed tenure Jan. 31, Greenspan testified before the Senate Foreign Relations Committee that America had better reduce its dependence on foreign oil or suffer damaging economic consequences.
A recent terrorist attack on Saudi Arabia's main oil refinery, though thwarted, should serve as a warning that a successful hit on an oil installation could spark a global price shock that would create ``a significant contraction in the economy," Greenspan said.
While the US and global economies have shown surprising resiliency to rising oil and natural gas prices since 2002, Greenspan said ``recent data indicate we may finally be experiencing some impact."
The former Fed chief also detailed how investors, rather than users of oil, have come to set the price of oil through purchasing futures contracts.
Yesterday, oil prices declined by 2 percent after US government data showed rising domestic inventories of crude oil and gasoline. Light sweet crude for July delivery fell $1.68 to settle at $70.82 a barrel on the New York Mercantile Exchange.
The bulk of Greenspan's nearly three-hour testimony focused on reducing oil dependence and boosting energy security.
Greenspan said repeatedly that cellulosic ethanol, a next-generation alternative fuel that could be made from virtually any plant fiber, appeared to be the most promising solution to America's oil addiction.
He said conventional corn-based ethanol holds little promise to reduce America's oil dependence significantly.