Will there be warnings of the progressively explosive nature of the rising national debt?
*Bloomberg, by Scott Lanman & Michael McKee, October 15, 2009
“Former Federal Reserve Chairman Alan Greenspan said he’s not ‘overly concerned’ about the recent weakening of the U.S. dollar, while warning of long-term costs to the country and its currency from the rising national debt.
‘I’m not overly concerned about the most recent decline in the dollar,’ which has returned to its value preceding the financial crisis, Greenspan said today at a Council on Foreign Relations forum in New York. At the same time, he warned it may become increasingly difficult to finance the federal debt.
The U.S. government ended its 2009 fiscal year with a deficit of $1.4 trillion, the biggest since 1945, the Congressional Budget Office reported last week. Greenspan said the increase in federal debt is the ‘most worrisome aspect of the economic agenda in the United States.’
‘There are equations in which certain relationships become progressively explosive,’ as increasing interest payments expand the deficit and debt, which increases interest payments in a continuing cycle, Greenspan said.
Throughout U.S. history, the capacity of the government to finance the debt has provided a ‘cushion’ that made the dollar ‘such an important currency in the world,’ he said.
‘There is no question that the cushion is going down,’ and when long-term interest rates start rising and inflation pressures build, ‘that’s very late in the game to turn it around,’ Greenspan said.”
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