Greenspan: U.S. 'Way Underestimating' the National Debt

Alan Greenspan, former chairman of the Federal Reserve, said a Social Security Trust Fund does not exist and that the U.S. is “way underestimating” the size of its national debt.


“The notion that we have a trust fund is nonsense – that trust fund has no meaning whatsoever except for the fact as an all private fund to benefit programs, if it runs out of money, you can only pay out in cash flows that come in but the probability that will happen is not particularly high,” Greenspan told the Fiscal Summit held by the Peter G. Peterson Foundation.

“That means the trust fund is a meaningless instrument that has no function … it’s exactly the same thing as current expenses.”

The Social Security and Medicare Trustees 2014 annual report said while legislation is needed to address all of Social Security’s financial imbalances, “the need has become most urgent with respect to the program’s disability insurance component. Lawmakers need to act soon to avoid automatic reductions in payments to DI beneficiaries in late 2016.”

Lawrence Lindsey, former assistant to the president on economic policy in the Bush administration, said the national debt is closer to 300 percent of GDP with unfunded obligations for Social Security and Medicare included.

“That, by the way, is higher than Greece’s debt currently,” he said.

Greenspan said the White House and Congress are avoiding the fact that the government has committed itself to paying for pensions the nation cannot afford.


“It’s not that we’re getting like Greece. We’re getting like Illinois,” he said.

Richard W. Fisher, president/CEO of the Federal Reserve Bank of Dallas, called the fiscal crisis a “political train wreck ready to happen.”

“We have to somehow urgently come to grips with it,” he said.

Greenspan said the U.S. is “way underestimating” the national debt, which is currently at $18 trillion.

“Largely because we are not including what I would call contingent liabilities, that is the issue of, which is answered by a question: what is the probability that in today’s environment JP Morgan would be allowed to default? The answer is zero or less,” he said.

“Now, that means that whole balance sheet is a contingent liability. Now to be sure, while it’s contingent, there’s no interest payments but ultimately that overhangs the structure because we have committed in so many different ways to guarantee this, that and the other thing. It’s not only Fannie and Freddie but it’s a whole series of financial institutions and, regrettably, it is also non-financial institutions.”

Fisher said it is clear what steps the federal government must take to tackle its financial challenges but he has no idea where the nation’s fiscal policy is heading.

“Mexico, who we make fun of, has one of the best run governments in North America. They have a declared budget. Their debt as a percentage of GDP is miniscule compared to ours. They don’t run deficits more than 2.5 percent. They’re liberalizing their infrastructure. They become an exporting powerhouse. They have a totally independent central bank,” he said.


According to Greenspan, entitlement spending in the U.S. was 4.7 percent of GDP in 1967 compared to more than 14 percent today.

“Had we kept it at that level, our productivity would be far higher today. The average wage would be very significantly higher, the standard of living would be higher and what we have to do is think about how we are going to shrink that pie back and, to me, that is the single most important problem that confronts this country,” he said.


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