Something that’s never happened even once in the history of the world with fiat money and floating fx policy.

Greenspan: High US Deficits Could Spark Bond Crisis

November 14 (Reuters) — The United States must move to rein in its massive budget deficits or it faces the risk of a bond market crisis, former Federal Reserve Chairman Alan Greenspan said Sunday.

“We’ve got to resolve this issue,” Greenspan said of the ballooning U.S. debt levels.

He spoke about the issue as a panel, chaired by former White House chief of staff Erskine Bowles and former U.S. Senator Alan Simpson, is due to deliver a report on debt and deficits by Dec. 1.

A draft report made public last week offered a series of politically tough tax and spending choices that would seek to reduce the debt by $4 trillion by 2020.

The report received a lukewarm reception from some politicians and outright condemnation by others, including House of Representatives Speaker Nancy Pelosi, who pronounced the ideas “simply unacceptable.”

Greenspan, who spoke on NBC’s “Meet the Press,” said he believed “something equivalent to what Bowles and Simpson put out is going to be approved by Congress. But the only question
is whether it is before or after a crisis in the bond market.”

He said the risk is that the deficit, which hit $1.3 trillion this year, could spook the bond market. That would result in long-term interest rates moving up rapidly and could lead to a double-dip recession.

31 Responses

  1. “The United States must move to rein in its massive budget deficits or it faces the risk of a bond market crisis, former Federal Reserve Chairman Alan Greenspan said Sunday.”

    Or, we simply could stop creating and selling T-securities, an operation that has been unnecessary since 1971, when we became monetarily sovereign. Problem solved.

    Can anyone explain how it is possible for Greenspan or Bernanke, or the Congress of the United States or the President or the vast majority of economists not to understand the implications of monetary sovereignty?

    It’s a question that bedevils me, not only because this lack of understanding seems impossible, but also because people keep asking me, “If you know this, why don’t [long list of names] understand it?” And I have no answer.

    Rodger Malcolm Mitchell

      1. Mike,
        Observation: The five year Treasury yield index closed last Weds. 11/10 @ 1.20

        Thursday mkt was closed

        Friday (1st Day of QE2) Closed @ 1.35

        Today (second day of QE2) it is over 1.45

        So they have increased the 5-year rate about 21% in less than 2 days with their QE2 (so far).

        Nice operation Bill Dudley!

      2. Isn’t this why rates didn’t really start to go down until they stopped QE1 earlier this year? When you announce ahead of time what and how much you’re going to buy, traders can get ahead of you and counteract your moves. Whereas if they did what they normally do with Fed Funds and just announce a target they probably wouldn’t have to do many actual trades at all, since everyone would know they can hit any target they want.

        So the question, for those more in the loop than I am: are they really just that stupid, or is this a surreptitious way to funnel massive profits to Wall street trading desks? I’m not normally one for Fed conspiracy theories, but they are making it hard to not tend in that direction, these days…

  2. and the other obvious conclusion, based on Greenspan’s history – one of his paying clients is interested in promoting this view; for narrow, pecuniary interests;
    as Mitchell & Warren say, it is NOT in the best interest of the USA, so some people are either incredibly ignorant, or outright traitors, or both … probably in more permutations than you’d want to imagine

    It’s always been this way. Only question now is how to turn our Titanic even a few degrees away from the ‘berg the Peterson Foundation is steering it towards

  3. in his [logically twisted] defense, though, Greenie can ALWAYS point to the example of Japan, and how high deficits destroyed THEIR bond mkt!!!

    More to the point, Rodger Mitchell, you have to wonder why someone close by isn’t ALWAYS calling bullshit on Greenspan’s remarks. Manufactured consent is the norm in DC.

    Back to popular mood: what can be done? We need to rouse citizens to say enough is enough, and that even the Tea Party is being manipulated effortlessly. When the Koch brothers speak, Rand Pauls seems to listen.

  4. Interesting how the “bond market” needs to be placated, while there is no consideration at all of people. Where is the idea that the market discounts future information. Is the bond market asleep now, so that it will suddenly sake up and realize what Greenspan had already realized and warned about some time ago. Apparently, he doesn’t think much of REH and EMH, which are foundational principles of neoliberalism.

    Gimme a break. This is either self-serving or just stupid.

    1. His next attempt to get back on the ‘right’ side of history, or at least be loved by those who currently run the joint?

  5. Amazing how Greenspan, who made a specialty out of spouting incomprehensible gibberish, and whose ideas have been thoroughly discredited, is quoted all the time in the press, while monetary sovereignty is mentioned between never and not at all.

    We need something spectacular to make the news. Warren, would you volunteer to run naked into Congress, shouting, “Deficits are necessary”?

    Rodger Malcolm Mitchell

    1. well, the Swedish Bikini Team got a lot of press;
      maybe an MMT Deficit Team would actually work – stage parades with “clothing deficit” guy/girls riding in MT9000s, solving the clothing crisis by knitting up an unsolvable apparel debt – fabricating cloth out of thin air! A great yarn to weave, mixing in metaphors about threadbare economies.

    2. Having just watched Deficit Hawk Paul Ryan’s interview with Charlie Rose, I see a weakness in his dogma that could be attacked: Ryan stated (in so many words) “I don’t care about unemployment”.

      1. Precisely! I think the main reason we are all talking past each other is because there are insurmountable moral differences that impede our willingness to embrace incoming facts. The persistence of commodity money thinking has less to do with an inability to understand soft currency than with sheer unwillingness to accept the moral implications of an infinitely flexible number on a spreadsheet by those who should know better. I mean, how does one control the idle masses and blame the victims without weapons of mass deflation?

      2. aside from morality; it’s simple statistics & operations; you can’t tune an engine, or ANY complex system, by ignoring key components

        the people at War Colleges have this down pat, and know it cold;
        ditto people at RAND, etc – innumerable other places; they’re mostly in denial that people in other silos can actually be acting so stupidly; most are saying “it’ll get better next quarter”

        It’ll take a pretty big break down to get 310 million people to coordinate more efficiently.

      3. Right, politicians today are like World War I generals. The more willing they are to accept casualties, the more seriously they’re taken.

      4. Robert/All,
        This just in: “Fed Should Drop Dual Mandate, Focus on Inflation: Corker”
        Corker needs to put a cork in it. I’m listening to the intro thinking this could be great news they would ditch the price stability part and just focus on the full employment, but nooooo. Corker comes out with the exact opposite!

        Corker says that the focusing on anything other than price stability is “UNJUST” can you believe it, to him, allowing rampant unemloyment is apparently a “just” policy. What religion is he practicing? …. folks we may be in BIG trouble.

      5. Matt, this could actually be good. If the Fed canned NAIRU and the Taylor rule, then unemployment would become fiscal as it properly is, falling to Congress and the president.

        Employment is a matter of demand and the Fed cannot directly influence NAD. This is the task of fiscal, and the pols can be held accountable at the ballot box, whereas the Fed cannot. Right now, Congress and the pres are passing this off to the Fed. That would end. They would have to take direct responsibility.

      6. True, but the real trouble lies with the Federal Reserve operating as a fourth branch of government (one more than the Constitution thought to mention). During Reagan’s first term, fiscal policy (tax cuts and higher spending via the Pentagon) didn’t get any traction until Volcker relented and lowered the Fed’s sky-high interest rates.

        Fiscal policy and monetary policy decisions really should be coordinated. Hmm, what does the Constitution say? Oh yes, “The executive power shall be vested in a President of the United States of America”.

      7. Tom,
        I agree with your assessment wrt stripping the Fed of one of the mandates, I also thought it would not be best to leave full employment to the Fed when they only have monetary policy…that wouldnt work either.

        Also to your point it could be a first step towards Warrens idea of a Fed that sets the policy rate to zero and just focuses on running the banking system.. not involved with employment goals at all.

        I was just put off by the gall of Corker in this marie antionette moment… and his use of the word “just” to describe his proposal. This is true religion for these people.

        I got that book by Nelson btw thanks and cant put it down, this type of statement by Corker and the one above by Ryan could be textbook examples right out of Nelsons book.

        Excerpt: “Compared with the attainment of a future heaven here on earth, the current transitional psychic burdens of progress, as borne by each citizen, are not important enough to be counted. Indeed, to count them might endanger the future economic salvation of the world. It is instead the religious duty of all good citizens of our time to bear she sacrifices of economic progress without complaint.”

        They are practicing a new religion completely apostate from any other that they may think they are practicing on Sunday mornings imo. This is very dark stuff. Resp

      8. Matt: Which book by which Nelson? Sounds interesting.

        Beo: Supply Side Jesus is hilarious. I’m a believer!

      9. Oliver,
        Tom refered me to this book by Nelson:

        Here is an article he wrote around the same time he wrote the book which summarizes the issue.

        Im starting to believe that this is what at core is going on, in that these normally intelligent people are being deceived due to the fact that they have adopted a non-devine religion, and this renders them unintelligent and unable to change their beliefs, even when other learned and serious people explain the operational realities to them in detail. Warren and Mike Norman have chronicled repeated incidences where their explainations, apparently received and understood by policymakers/economists they meet with, are just seemingly ignored when they leave the meeting, like the conversation never took place. This has also happened to me with some of the people I have this discussion with (on the right). It is some of the oddest behaviour I have ever witnessed. I so far cant find any other explanation for this remarkable behaviour other than this spiritual one. Resp,

  6. Dudes following the first rule “ The Human Monkey will Always take the shortest route to the Crack House” I conclude somebody sold the leaders on the Chaos Theory long ago. Other wise I might not have ever learnt what a sham the whole system is (Thanks Warren)

    Here is the answer

    Part 2

    Its kind of rough but the bottom line is we need an accountable government…….

    1. Dave, I like your robot spokesman, good stuff. What you’re suggesting in your videos is full reserve banking of the kind that Dennis Kucinich and the American Monetary Institute have been has been advocating for years (the idea was called “The Chicago Plan” when it was proposed in the 1930s).

      Here’s a recent thread where Warren explains why he thinks full reserve banking is a pointless reform.

  7. Who knew that Greenspan was still alive? But, since he is, why would anyone listen to him? If we are going to do anything he recommends, let’s just wait until after the big US bond market crash that he predicts is coming.

  8. Look what these a–holes are doing now, got this in an email from the Peterson Fdn. today:

    Last week, the Peter G. Peterson Foundation launched OweNo a nationwide campaign to engage Americans in a movement to address our countrys growing debt and deficits. If you were able to join us for the live launch event via our website, we hope you were impressed with our commercials and the kickoff.

    If you havent yet had a chance, please visit and its companion site

    You can also visit the campaign on Facebook at or

    Below are some of the things people are saying about the campaign that wed like to share with you.

    Thanks for being part of the launch,

    Myra Sung
    The Peter G. Peterson Foundation


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