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| Economy |
| Greenspan Says U.S. May Soon Reach Borrowing Limit |
| 2010-06-19 |
| H/T Instapundit Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a "tectonic shift" in fiscal policy to contain borrowing. "Perceptions of a large U.S. borrowing capacity are misleading," and current long-term bond yields are masking America's debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal's website. "Long-term rate increases can emerge with unexpected suddenness," such as the 4 percentage point surge over four months in 1979-80, he said. Greenspan rebutted "misplaced" concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner said this month that while fiscal tightening is needed over the "medium term," governments must reinforce the recovery in private demand. "The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy," said Greenspan, 84, who served at the Fed's helm from 1987 to 2006. "Incremental change will not be adequate." Pressure on capital markets would also be eased if the U.S. government "contained" the sale of Treasuries, he wrote. "The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms," Greenspan said. The "very severity of the pending crisis and growing analogies to Greece set the stage for a serious response." Yields on U.S. Treasuries have benefitted from safe-haven demand in recent months because of the European debt crisis, a circumstance that may not last, said Greenspan, who now consults for clients including Pacific Investment Management Co., which has the world's biggest bond fund. Benchmark 10-year Treasury notes yielded 3.20 percent as of 12:11 p.m. in Tokyo today, down from the year's high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the crisis began. Yields have remained low "despite the surge in federal debt to the public during the past 18 months to $8.6 trillion from $5.5 trillion," Greenspan said. The swing in demand toward American government debt and away from euro-denominated bonds is "temporary," he said. "Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis," Greenspan said. "Our policy focus must therefore err significantly on the side of restraint." |
| Posted by:g(r)omgoru |
| #3 Governments can always borrow domestically by printing money, which is what the USA and other governments are doing at the moment. That road leads to hyper-inflation and they are taking a massive bet that structural deflation will last enough to stop inflation taking off big time. IMO, the fiscal equivalent of going to Vegas and putting a few trillion $ on black to win at the roulette table. |
| Posted by: phil_b 2010-06-19 20:54 |
| #2 Once you can't pay the interest on the debt, the interest rate goes up. It starts a parabolic curve leading to bankruptcy. Governments should not be in debt. |
| Posted by: Bright Pebbles 2010-06-19 09:14 |
| #1 It's not so much borrowing limit as it is borrowing rate. And come the midterm elections I think you'll find you reached it long ago. |
| Posted by: gorb 2010-06-19 00:57 |