Tags: greenspan | inflation | budget | deficit

Greenspan: Inflation, Soaring Budget Deficit My Biggest Fears

By    |   Friday, 11 September 2020 11:53 AM

Former Fed Chairman Alan Greenspan said he is worried about inflation and the government’s swelling budget deficit.

“My overall view is that the inflation outlook is unfortunately negative and that’s essentially the result of entitlements crowding out private investment and productivity growth,” Greenspan recently told CNBC.

The government may be “underestimating” the size of future deficits, Greenspan added.

He warned that the federal government’s spending imbalance is “getting out of hand.” Through July, the fiscal 2020 shortfall totaled $2.45 trillion, the byproduct of intensified government spending to get the economy through the pandemic-associated shutdown, CNBC explained

Greenspan also has warned about the fragility of major entitlement spending like Social Security, Medicaid and Medicare.

“We do have a great deal of knowledge on the extraordinary increase in the size of the retirement area,” he told CNBC. “We are if anything underestimating the size of the budget deficits that are down the road.”

On the coronavirus pandemic, he told CNBC: “We know very little so we pretend a great deal.”

Meanwhile, the U.S. government is paying less as it borrows more, one reason investors appear more comfortable than Congress about funding another leg of stimulus.

Interest payments in the federal budget declined about 10% in the first 11 months of this fiscal year, when America was running up its biggest deficit since World War II. Over the next few years, servicing the national debt will be cheaper than any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office, Bloomberg said.

That’s because yields in the $20 trillion U.S. Treasury market plunged to record lows early in the pandemic -- and they’ve risen only slightly since then, even though the supply of debt has surged to a record.

“While there’s been a lot of concern about the mounting debt, it hasn’t caused the problems that were anticipated by the doomsters,” says Newsmax Finance Insider Ed Yardeni, founder of Yardeni Research Inc. “It’s not just a question of how much debt is outstanding, but what is the cost to service that debt.”

The CBO predicts a deficit of about $3.7 trillion this year, or 16% of GDP, more than triple the year-earlier figures. Bonds issued to fund the shortfall have pushed the U.S. public debt past $20 trillion –- more than the economy’s annual output.

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Former Fed Chairman Alan Greenspan said he is worried about inflation and the government's swelling budget deficit.
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Friday, 11 September 2020 11:53 AM
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