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Greenspan Says Election Won’t Help Resolve Fiscal Cliff

Former Federal Reserve chairman Alan Greenspan said the U.S. election yesterday perpetuated the political status quo and hasn’t increased the probability of resolving the nation’s fiscal challenges.

“I’m concerned that the election per se has really not changed the balance very much of what’s going on” in the debate over how to reduce the U.S. deficit, Greenspan said today in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “We’ve got to resolve this issue.”

“Unless and until we come to grips with this issue, we are not going to be able to look to the future with a considerable state of equilibrium and hope,” said Greenspan, who led the U.S. central bank from 1987 to 2006.

The three-year U.S. expansion faces headwinds from a slowing global economy and the risk Congress won’t avert $607 billion in federal tax increases and spending cuts beginning at the start of next year.

Congress lined up the spending cuts in 2011 as part of an agreement to raise the federal debt ceiling and cut future deficits. Failing to resolve the issue would probably push the world’s largest economy back into recession, the nonpartisan Congressional Budget Office said in August.

President Barack Obama, a Democrat, defeated Republican Mitt Romney to win a second term that will begin with the same balance of power in Congress as before the elections, with Democrats controlling the Senate and Republicans holding the majority in the House.

Automatic Cuts

Unless Congress acts, automatic spending cuts, known as sequestration, will begin in January and the Bush tax cuts will expire Dec. 31. Obama and congressional Democrats want to let the tax cuts expire for top earners, while Republicans advocate extending them for all income levels.

“The solution to this is going to be far more difficult than I think we believe,” Greenspan said today.

“While it is certainly the case that the political differences that currently exist today are very sharp, we’ve seen similar sharp problems in the political system many times in the past,” he said. “What they did was to recognize that those problems existed, but were willing to reach across the aisle and come to an agreement.”

Separately, Greenspan said China “obviously” has been manipulating its currency to create jobs.

“A relatively low exchange rate has enabled China to create jobs throughout their population, especially in lower-priced goods related workers,” Greenspan said.

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