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Former Fed Chair Alan Greenspan Says Deficit and Inflation Worrisome

2 mins
10 September 2020, 20:40 GMT+0000
Updated by Ryan Smith
10 September 2020, 20:48 GMT+0000
In Brief
  • Former Fed Chairman Alan Greenspan expressed his concerns over inflation and deficits.
  • He believes future entitlement pressures will create even larger budget issues than COVID-19.
  • The market has seen losses in tech, oil, and bitcoin in recent days, as worries over spending and bubble trading persist.
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Alan Greenspan, the former chairman of the board of the Federal Reserve (Fed), expressed his concerns on Thursday, Sep. 10, regarding inflation and deficits.
Sometimes called the ‘Maestro,’ Greenspan explained that the future impacts of current Fed policies are murky at best.

Deficits Out of Hand

Greenspan commented that federal spending is getting increasingly out of hand. With shortfalls for the year at $2.45 billion, current expenditure is far outstripping the U.S. budget. The assessment comes after news that the U.S. Federal deficit will likely exceed the total U.S. economy at the beginning of next year. Debt loads have increased substantially as the government has sought to provide relief during the COVID-19 crisis. Greenspan also expressed concern that the growing entitlement needs, like Social Security, may dwarf current spending. Demand for future payments to these systems will continue to rise, and the former chair worried the needs would be dramatic.

Inflation Pressures Abound

Greenspan’s views on inflation are also negative and linked closely with the pressure of entitlement spending. He expressed concern that meeting entitlement needs could force increased liquidity and, therefore, inflation. The substantial spending bills passed to offer stimulus to U.S. citizens have significantly increased the available liquidity in the market. To meet the currently expected entitlement pressures, these totals will be forced to grow as well.

Managing Inflation

The Fed’s policy of quantitative easing and borrowing to meet stimulus expectations has already caused concern over inflation. However, current chairman Jerome Powell’s statements regarding a 2% target inflation have allowed for greater freedom. Greenspan’s take on this targeted model was neutral, saying that he didn’t need to address those issues. However, he seemed open to the potential that the market could bear such inflation rates. The overall picture of the market continues to leave many guessing. Tech stocks, oil, and bitcoin have taken a beating over the past few days. At the same time, Treasury bills have seen improved pricing as a potential safe-haven asset.


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