Summary
In an era when Washington policymakers have been splurging on Social Security surpluses while increasingly resorting to blue smoke and mirrors in their budget accounting, Federal Reserve Chairman Alan Greenspan offered a brief lesson in reality-based arithmetic when he testified Wednesday before the House Budget Committee.
Mr. Greenspan was asked to enumerate the consequences for interest rates and the economy if the deficit-generating budget impasse that has characterized policymaking for the past three or four years were allowed to continue. "If you merely project what the actuaries are [projecting] - how the actuaries interpret current law into future spending and tax obligations - [then] you have an extraordinary rise in the unified budget deficit," Mr. Greenspan responded. "[W]e'll find, sooner rather than later, that the long- term interest rates begin to rise. And that when you begin to do the arithmetic of what the rising debt level implied by the deficits tells you, and you add interest costs to that ever-rising debt at ever-higher interest rates, the system becomes fiscally destabilizing. And what you end up with is probably a stagnant economic system. But unless we do something to ameliorate it in a very significant manner," the Fed chairman warned, "we will be in a state of stagnation."See the full content of this document
Extract
Greenspan's Lesson
Only a few moments earlier, before sounding the "stagnation" alarm at a decibel level to which he had not previously resorted, Mr. Greenspan characterized So...
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