Greenspan Says Greece Default Almost Certain May Trigger U.S. Recession By
Vivien Lou Chen | Jun 16, 2011 7:46 PM ET .
Alan Greenspan, former Federal Reserve chairman, said a
default by Greece is “almost certain” and could
help drive the U.S. economy into recession.
“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.”
Greek government bonds slumped, pushing the yield on the
two-year note above 30 percent for the first time, as Prime
Minister George Papandreou’s failure to win support
for more austerity fueled speculation the European country
will fail to meet its obligations. More than 20,000 people
protested in Athens this week against wage reductions and
tax increases, with police using tear gas on crowds and
strikes paralyzing ports, banks, hospitals and state-run
companies.
The chances of Greece defaulting are “so high that
you almost have to say there’s no way out,”
said Greenspan, who ran the central bank from 1987 to 2006.
That may leave some U.S. banks “up against the wall.”
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.
Economic data released today show confidence in the expansion
eroding among Americans and businesses, as unemployment
remains above 9 percent.
U.S. Debt Limit
The U.S. recovery is being hindered by apprehension among
businesses over the long-term outlook, and there’s
nothing more for Fed policy makers to do, Greenspan said.
U.S. lawmakers are wrangling over spending cuts and budget
reforms as they seek an agreement to increase the $14.3
trillion debt limit before Aug. 2, the date on which the
Treasury Department said it will have exhausted its borrowing
authority.
The U.S. debt issue is becoming “horrendously dangerous,”
said Greenspan, who added he doubts lawmakers have another
year or two to solve it.
After leaving the Fed, the former chairman founded the
consulting firm Greenspan Associates and became a consultant
or adviser to Deutsche Bank AG, Pacific Investment Management
Co. and Paulson & Co., a hedge-fund firm that profited
from the collapse of the U.S. subprime-mortgage market.
Greenspan, appointed Fed chairman by Republican President
Ronald Reagan, was once described as “the greatest
central banker who ever lived” by economist Alan Blinder,
the central bank’s former vice chairman.
He has since been blamed for contributing to the U.S. financial
crisis by keeping interest rates low for too long and failing
to regulate the mortgage market, according to critics including
Allan Meltzer, a professor at Carnegie Mellon University
in Pittsburgh, and members of the Financial Crisis Inquiry
Commission.