Friday, June 18, 2010
Complacency Regarding the U.S. Debt
Former Federal Reserve Chairman Alan Greenspan argues in today's Wall Street Journal that low interest rates and low inflation are fostering complacency with regard to the massive U.S. debt. We should not take comfort in the fact that global investors have flocked to the U.S. dollar as a safe haven in the wake of the debt problems in Europe. After all, U.S. debt levels as a percentage of GDP rival those in many European nations. Moreover, as Greenspan points out, the U.S. may face a sudden rise in interest rates if our debt levels persist, or worse yet, continue to grow unchecked. Greenspan reminds us that, "Long-term rate increases [in interest rates] can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points."