Greenspan: Our $1 Trillion Deficit Should Be ‘Scaring Everybody’ Into ‘Panic to Do Something’

March 01, 2019

By Nicholas Ballasy

WASHINGTON – Former Federal Reserve Chairman Alan Greenspan warned that the country’s $1 trillion deficit is not economically sustainable.

“We are in a $1 trillion deficit and a trillion dollar deficit should be scaring everybody who is in the political system into panic to do something. The answer is the political system does not look at the data on the size of the deficit. They talk about it, they do everything they want to do but they never act. Action occurs only if and when that very extraordinary increase in the federal debt unfunded begins to create inflation,” Greenspan said at a National Association for Business Economics luncheon on Thursday.

“There is no history in western civilization where you could expand the money supply as much as is going to be necessary to fund this deficit without engendering inflation. Within a number of years if nothing is done we will have federal debt as a percentage of GDP at levels close to what existed during World War II. Unless you believe in fairies, that is not an economy that can function without inflationary instability,” he added.

On Thursday, it was reported that the GDP grew 2.6 percent GDP in 2018. Greenspan shared his reaction to GDP growth.

“We’re actually not bad. The GDP at 2.6 percent annual rate of growth was a bit more than some were expecting,” he said. “In recent years they have been at 1 percent.”

Greenspan applauded the lower corporate tax rate that was part of the tax reform package. When asked how he felt about the widening deficit as a result of the new tax law, Greenspan replied, “That’s what happens when you cut taxes.”

“The figures this morning say the capital investment increases, which really come off that tax cut, are having a positive effect. Now, that’s all well and good and I think it is a positive thing but what do you do with the deficit? When the deficit turns into inflation, things happen, I’m afraid,” he said.

Greenspan said politicians should work on entitlement reform for the long-term financial health of the country.

“In the back of their report, I think it is page 199, the actuaries of the Social Security Trust Fund demonstrate mathematically that under the existing structure, in order to get fiscal solvency or mathematical solvency as a private insurance company would do, you have to cut benefits by 25 percent. The probability of that occurring in our political system is 0 and that figure might be too high,” Greenspan said.