Tags: Financial Markets | Money | National Debt | Trump Tax Reform | stagflation | inflation | economy

Greenspan: US Fiscal System 'Out of Whack,' Headed for 'Stagflation'

(Fox Business' "Mornings With Maria")

By    |   Thursday, 03 May 2018 03:37 PM

The nation's fiscal system is "out of whack," and the recent huge omnibus spending bill and growing interest rates are slowing the economy while creating a "false dawn," former Federal Reserve Chairman Alan Greenspan said Thursday.

"We are moving toward stagflation," Greenspan, who served as chairman from 1987 through 2006, told Fox Business' Maria Bartiromo on "Mornings with Maria." "In the process of moving in that direction, it feels good, but it's a false dawn."

The economy is currently reaping rewards from President Donald Trump's tax cut bill and his regulatory rollbacks, but Greenspan warned the nation deficit is growing.

"The fiscal system is out of whack," Greenspan commented. "While I approve wholeheartedly of the corporate tax cut and deregulation, the corporate tax cut unquestionably causes the deficit to rise, and we are not funding it by other means."

Without that funding, he added, "productivity cannot grow and accelerate."

Meanwhile, the economy is already slowing down, despite impressive first quarter numbers, the economist said.

"Everyone has been explaining for a long period of time, the seasonal adjustments for the first quarter tends to push the GDP growth rate down, but the critical issue is that the longer term does not exhibit a particularly powerful GDP growth rate," Greenspan explained. "All of the major analysts who look at the data in the future, including the CBO [Congressional Budget Office] and the Fed and all see this as a slowdown, quite significantly, where it's been at the 3 percent to four percent range for a goodly part of the post-World War II period."

He said he does agree the tax cuts, specifically for corporate taxes, and deregulation have been "very positive forces" that are starting to show an impact.

"But when you look further down the road, the demographics are against us," Greenspan said. "The most productive people in the economy are retiring and the basic structure of productivity growth is being suppressed by the huge increase in entitlements, which largely is not an economic phenomenon."

Instead, it reflects the aging of the population.

"Social Security is a significant problem in the sense that it is not being funded," Greenspan said. "The actuaries of the Social Security Administration, in fact, say sort of a hidden part of the last annual estimate. In order to have a sound Social Security system, you have to cut benefits now and indefinitely into the future by 25 percent."

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The recent huge omnibus spending bill and growing interest rates are slowing the economy while creating a "false dawn," according to former Federal Reserve Chairman Alan Greenspan, who added the nation's fiscal system is "out of whack."
stagflation, inflation, economy, alan greenspan, interest rates
Thursday, 03 May 2018 03:37 PM
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