"With all of this bickering going on, the economy is slowing down," Greenspan said. "You can see it in all the data. I don't see a double-dip, but I do see it slowing down."
Europe, which buys a quarter of U.S. exports and. houses the operations of many American companies, would determine the course of the U.S. economy's recovery, Greenspan said.
Greenspan said despite the S&P downgrade, U.S. Treasury bonds, unlike Italian bonds, were still a safe investment.
"This is not an issue of credit rating. The United States can pay any debt it has because it can always print money to do that. There's zero probability of default," he said. "What I think the S&P (downgrade) did was to hit a nerve. ... It's hit the self-esteem of the United States, the psyche. And it's having a much profounder effect than I conceived could happen."