Tags: Greenspan | deficit | financial | crisis

Greenspan: Failure to Solve Deficit Problem Could Spark Financial Crisis

By Dan Weil   |   Wednesday, 25 Sep 2013 10:22 AM

"Unconstrained deficit spending" represents the United States' No. 1 domestic economic problem, former Federal Reserve Chairman Alan Greenspan writes in a new book, Politico reports.

In "The Map and the Territory: Risk, Human Nature and the Future of Forecasting," Greenspan says failure to address our deficit problem could cause a financial crisis and topple our economy from its world-leading position.

"Both uncompromising sides of our ongoing debate on fiscal and other issues need to recognize that financial crisis lurks should we fail to resolve our deeply disruptive fiscal imbalance," Greenspan writes, according to Politico.

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The deficit situation is actually worse than official data indicate, because of contingent liabilities from the bank and corporate bailouts of the financial crisis, Greenspan says.

The Congressional Budget Office estimates a deficit of $642 billion-$700 billion for fiscal 2013, which ends Monday.

"At risk is the status the American economy has held as the pre-eminent world economic power for more than a century," Greenspan notes, according to Politico.

Greenspan says Washington needs reform of its own to solve our deficit woes. "Our highest priority going forward is to fix our broken political system," he states. "Short of that, there is no viable long-term solution to our badly warped economy."

Washington is now transfixed on the coming conflict between Democrats and conservative Republicans over raising the debt limit.

While failure to approve an increase might be disastrous, it would be unlikely to lead Moody's Investors Service to cut the government's triple-A rating, Reuters reports.

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