THE United States must move to rein in its massive budget deficits or it faces the risk of a bond market crisis, former Federal Reserve chairman Alan Greenspan said yesterday.
“We’ve got to resolve this issue,” Greenspan said of the ballooning US debt levels. He spoke about the issue as a panel, chaired by former White House chief of staff Erskine Bowles and former US Senator Alan Simpson, is due to deliver a report on debt and deficits by 1 December.
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.
The report received a lukewarm reception from some politicians and outright condemnation by others, including House of Representatives Speaker Nancy Pelosi, who pronounced the ideas “simply unacceptable”.
Greenspan said he believed “something equivalent to what Bowles and Simpson put out is going to be approved by Congress. But the only question is whether it is before or after a crisis in the bond market”.
He said the risk is that the deficit, which hit $1.3 trillion this year, could spook the bond market.
That would result in long-term interest rates moving up rapidly and could lead to a double-dip recession.