Global Macro Monitor

Former Fed chairman,  Alan Greenspan, dishes out some real gems to CNN’s Ali Veshi on the fiscal cliff and the country’s current economic situation, in general.   He almost sounds like the inflation slaying Paul Volcker.  Rather than inflation this time, it’s runaway government spending.   Greenie says that a small recession may be worth the price to arrest that demon.

No worries, however,  as we have a monetary policy repressing the government’s borrowing costs, which are at record lows.  At the end of October, for example, the average rate on all interest bearing marketable Treasury securities was 2.075 percent.  This is less than half the 4.857 percent average interest rate paid on the public marketable debt in October 2007.   Of course interest rates will never reset higher, right?

The markets are currently grappling with some of these broader issues Greenspan discusses, of which, the fiscal cliff is just a small part.   We will be selling on the  cliff deal unless it really addresses the country’s long term structural fiscal problem.

The final deal should include a package of growth measures,  preferably on the supply side,  and it doesn’t necessarily mean taking a hatchet to current spending and raising taxes through the roof.    Good luck on that one.

Greenspan’s money quotes:

– If we don’t close this deficit, fairly quickly, we are in real trouble.
– …until we reign in the spending growth,  this economy can’t function.
-…we’re not going to get out of this thing without paying…all the low hanging fruit of solving these types of problems has long ago been picked.

–  Alan Greenspan,  CNN Money – November 16, 2012

Click here for interview.   It’s worth the three minutes.

(click here if photo is not observable)