Time to Reduce the Deficit And Worry About The Debt.

Greenspan Warns of Risks From U.S. Debt

WASHINGTON—Former Fed Chairman Alan Greenspan said the U.S. could face a bond-market crisis if politicians don’t act soon to start cutting the nation’s debt.

In an interview with Kelly Evans, Alan Greenspan discusses the dangers of current fiscal policy while challening his critics to prove him wrong on any decision he made as Fed Chairman.

In an interview Friday with The Wall Street Journal, Mr. Greenspan said that eventually Congress would pass a budget that includes many proposals by a White House debt-reduction panel.

“I think that the type of budget agreement that was put together by Alan Simpson and Erskine Bowles is the type of budget that will be passed by Congress,” Mr. Greenspan said. “The only question is, will it be before or after the bond-market crisis.”

The former head of the U.S. Federal Reserve was referring to the co-chairmen of the National Commission on Fiscal Responsibility and Reform, who last month won limited support for a sweeping overhaul of U.S. tax and spending policies that would cut $4 trillion in debt.

Mr. Greenspan said the risk of a bond-market crisis is so great that he favors raising taxes immediately.

“The probability that we will go through the next two or three years with no bond-market problems, no inflation problems, is probably better than 50-50,” he said. “But not much.”

Mr. Greenspan said he thought the economy was gaining momentum, with the strongest signals of growth coming since the middle of last month.

He credited the “wealth effect,” which refers to an increase in spending that accompanies escalating stock prices.

Mr. Greenspan also defended his legacy, saying he had answered his critics with facts.

“If they prove I’m wrong, I’ll change,” he said.