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June 17, 2011

Greenspan:"...chances of Greece not defaulting are very small"

"...a default by Greece is “almost certain” and could help drive the U.S. economy into recession. "

Bloomberg carries the comments by former USA Federal Reserve chairman Alan Greenspan on June 16 in an article by Vivien Lou Chen about the ongoing Greek crisis:

"The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan, 85, said in an interview today with Charlie Rose in New York. “The chances of Greece not defaulting are very small.

...Greece’s debt crisis has the potential to push the U.S. into another recession, Greenspan said. Without the Greek issue, “the probability is quite low” of a U.S. recession, he said. “There’s no momentum in the system that suggests to me that we are about to go into a double-dip,” Greenspan said."

In an op-ed at the Wall Street Journal, Greenspan went further with comparisons about Greece and the United States:

"The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees.

We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force, if history is any guide, will not be able to consistently increase output per hour by more than 3% annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments. (We must avoid persistent borrowing from abroad. We cannot count on foreigners to finance our current account deficit indefinitely.)

Only politically toxic cuts or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation, can close the deficit. I rule out large tax increases that would sap economic growth (and the tax base) and accordingly achieve little added revenues.

...the very severity of the pending crisis and growing analogies to Greece set the stage for a serious response. That response needs to recognize that the range of error of long-term U.S. budget forecasts (especially of Medicare) is, in historic perspective, exceptionally wide. Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis. "

Related: Greenspan sees analogies between Greece and USA - June 2010 GREECE BY NIGHT More News - ArchivePhotos of GREECE

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