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Tags: alan greenspan | government | spending | economy

Alan Greenspan: Soaring Entitlements, Govt Spending 'Extremely Dangerous' to US Economy

Thursday, 30 July 2015 08:31 AM EDT

Former Fed Chairman Alan Greenspan warns that government spending "extremely dangerous" to the future of the US economy.

Greenspan decried a rise in entitlement costs, which he contended have pressured the U.S. economy.

"To me the discussion today shouldn't even be on monetary policy it should be on how do we constrain this extraordinary rise in entitlements," he told CNBC, calling the trend "extremely dangerous."

Social expenditures in the U.S. were 19.2 percent of gross domestic product last year, up from 15.5 percent in 2005, according to data from the Organization for Economic Cooperation and Development.

The portion of GDP spent by the U.S. on social benefits last year was below the OECD average of 21.6 percent. The majority of member nations individually shelled out a higher percentage of GDP, CNBC reported.

"What's disturbing to me is not what I'm hearing, but (what I'm) not hearing. It's essentially the issue of entitlements," he said. "And neither the Republicans nor the Democrats want to touch that. And the reason they don't touch it is they've concluded that these are essentially the third rail of American politics. You touch them and you lose," he said.

As for the economy's future direction, he is worried.

"We are in a period that is some form of secular stagnation. Very specifically, we've got an extremely strong and growing labor market. but productivity growth is extraordinarily low," he said.

He also repeated his recent warning about a bond-market bubble.

"Now the price earnings ratio in the bond market is high enough so that we're that in the stock market, we would be worrying about it. And I think we ought to worry about this because interest rates are below where they historically have been for generations, indeed, for millennia," he said.

"I think we've never been in a position such as this, so. Very difficult to be definitive as to what might happen or might not happen. But, remember, liquidity fundamentally is a psychological issue. We have periods of tremendous amount of liquidity in the past, which disappeared virtually overnight. Human psychology is very volatile and all you need is a slight little tilt and liquidity disappears, as it did immediately following the crisis of 2008."

Other experts have also sounded the alarm about excessive government spending, targeting the Obama administration.

Dr. Mark W. Hendrickson, an adjunct faculty member, economist, and fellow for economic and social policy with The Center for Vision & Values at Grove City College, says President Barack Obama’s policies “have crippled” the American economy.

"While not having increased federal spending by as large a percentage as his predecessor, Obama undeniably has presided over more market-distorting government spending that any of his predecessors," he wrote in the Floyd County Times.

"To be fair, some of this spending was already baked into the cake — particularly the rising spending on Social Security and Medicare. Because federal entitlements operate on a 'pay as you go' basis, these increasing expenditures to seniors do not consist of real economic returns on capital invested," he wrote.

"Instead they transfer hundreds of billions of dollars from current workers to mostly retirees. Entitlement expenditures artificially inflate GDP and overstate the real wealth of the country, because those dollars represent purchasing power that does not arise from the production of actual goods or services."

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Former Fed Chairman Alan Greenspan warns that government spending extremely dangerous to the future of the US economy.
alan greenspan, government, spending, economy
Thursday, 30 July 2015 08:31 AM
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