Former Fed Chairman Alan Greenspan warns that government
spending "extremely dangerous" to the future of the US economy.
Greenspan decried a rise in entitlement costs, which he
contended have pressured the U.S. economy.
"To me the discussion today shouldn't even be on monetary policy
it should be on how do we constrain this extraordinary rise in
entitlements,"
he told CNBC, calling the trend "extremely
dangerous."
Social expenditures in the U.S. were 19.2 percent of gross
domestic product last year, up from 15.5 percent in 2005,
according to data from the Organization for Economic Cooperation
and Development.
The portion of GDP spent by the U.S. on social benefits last
year was below the OECD average of 21.6 percent. The majority of
member nations individually shelled out a higher percentage of
GDP, CNBC reported.
"What's disturbing to me is not what I'm hearing, but (what I'm)
not hearing. It's essentially the issue of entitlements," he
said. "And neither the Republicans nor the Democrats want to
touch that. And the reason they don't touch it is they've
concluded that these are essentially the third rail of American
politics. You touch them and you lose," he said.
As for the economy's future direction, he is worried.
"We are in a period that is some form of secular stagnation.
Very specifically, we've got an extremely strong and growing
labor market. but productivity growth is extraordinarily low,"
he said.
He also repeated his recent warning about a bond-market bubble.
"Now the price earnings ratio in the bond market is high enough
so that we're that in the stock market, we would be worrying
about it. And I think we ought to worry about this because
interest rates are below where they historically have been for
generations, indeed, for millennia," he said.
"I think we've never been in a position such as this, so. Very
difficult to be definitive as to what might happen or might not
happen. But, remember, liquidity fundamentally is a
psychological issue. We have periods of tremendous amount of
liquidity in the past, which disappeared virtually overnight.
Human psychology is very volatile and all you need is a slight
little tilt and liquidity disappears, as it did immediately
following the crisis of 2008."
Other experts have also sounded the alarm about excessive
government spending, targeting the Obama administration.
Dr. Mark W. Hendrickson, an adjunct faculty member, economist,
and fellow for economic and social policy with The Center for
Vision & Values at Grove City College, says President Barack
Obama’s policies “have crippled” the American economy.
"While not having increased federal spending by as large a
percentage as his predecessor, Obama undeniably has presided
over more market-distorting government spending that any of his
predecessors,"
he wrote in the Floyd County Times.
"To be fair, some of this spending was already baked into the
cake — particularly the rising spending on Social Security and
Medicare. Because federal entitlements operate on a 'pay as you
go' basis, these increasing expenditures to seniors do not
consist of real economic returns on capital invested," he wrote.
"Instead they transfer hundreds of billions of dollars from
current workers to mostly retirees. Entitlement expenditures
artificially inflate GDP and overstate the real wealth of the
country, because those dollars represent purchasing power that
does not arise from the production of actual goods or services."
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