Indiana Grain Company, LLC

Posted: 06/21/10

By: tomgrisafi

Former Federal Reserve Chairman Alan Greenspan warned today in an editorial in the Wall Street Journal that the U.S. may be running out of time when it comes to reining in massive federal deficits.

Greenspan, who led the Fed between 1987 and 2006, said, "Inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences."

Core inflation has fallen below 1%, as measured by the Consumer Price Index, and the debt crisis in Europe has lifted the dollar at the expense of most currencies because the greenback is still viewed as a safe-haven asset during a crisis. The renewed interest in the dollar has sent longer-term government yields down sharply, which in turn, has lent a hand to consumers who want to buy homes or refinance mortgages.

But Greenspan warned, “Perceptions of a large U.S. borrowing capacity are misleading,” and longer-rates could unexpectedly surge, much like what happened in 1979-80.

The former Fed chairman said a "a tectonic shift in fiscal policy,” is needed both here and abroad. "Incremental change will not be adequate."

Source: Wall Street Journal, Business Examiner