Posted on 15 November, 2010 | No Comments
“The United States must move to rein in its massive budget deficits or it faces the risk of a bond market crisis” according to former Federal Reserve Chairman Alan Greenspan .
He spoke as a panel, chaired by former White House chief of staff Erskine Bowles and former Senator Alan Simpson, is due to deliver a report on debt and deficits by December 1.
Greenspan believe that the deficit, which is set to hit $1.3 trillion this year, may begin to frighten the bond market, which could undermine the recovery and push the economy back into recession. “The only question is, is it before or after a bond market crisis? Because there’s no alternative,” he said.
“The big, serious problem is whether or not the outlook for the longer-term deficit spooks the bond market to a point where long-term interest and mortgage rates move up very sharply,” said Greenspan. “If that happens, that will cause the double dip.”
A draft report made public last week offered a series of politically tough tax and spending choices that would seek to reduce the debt by $4 trillion by 2020.