“We’ve got to resolve this issue before it gets forced upon us,” Greenspan said of the ballooning US debt levels.
He spoke as a panel, chaired by former White House chief of staff Erskine Bowles and former US Senator Alan Simpson, is due to deliver a report on debt and deficits by Dec. 1.
A draft report made public last week offered a series of politically tough tax and spending choices that would seek to reduce the debt by $4 trillion by 2020.
The suggestions received a lukewarm reception from some politicians and outright condemnation by others, including House of Representatives Speaker Nancy Pelosi, who pronounced the ideas “simply unacceptable.”
Greenspan, who spoke on NBC’s “Meet the Press,” said he believed “something equivalent” to what Bowles and Simpson recommended would eventually be approved by the US Congress.
“The only question is, is it before or after a bond market crisis? Because there’s no alternative,” he said.
He said the US deficit, which hit $1.3 trillion this year, may begin to frighten the bond market, which could undermine the recovery and push the economy back into recession.
“The big, serious problem is whether or not the outlook for the longer-term deficit spooks the bond market to a point where long-term interest and mortgage rates move up very sharply,” said Greenspan. “If that happens, that will cause the double dip.”
Greenspan caused a stir last week when he said in a Financial Times column that Washington was pursuing a policy of weakening the dollar, prompting US Treasury Secretary Timothy Geithner to insist that the United States would never deliberately weaken its currency.
