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Greenspan Says Economy Stalled Without Budget Deal

The U.S. economy “is going nowhere” until a budget agreement is reached that includes debt reduction to revive sustainable growth, former Federal Reserve Chairman Alan Greenspan said.

“Unless we remove some of the deep-seated uncertainty, especially for investments in very long-lived assets,” growth will remain under 2 percent, Greenspan said today during a “Bloomberg Surveillance” television interview with Sara Eisen in Washington.

Greenspan said he supports the $2.5 trillion package of spending cuts and tax increases proposed by Erskine Bowles and Alan Simpson. An update of the plan released today in Washington includes $740 billion in increased revenue over the next decade that Republicans have deemed unacceptable and a higher eligibility age for Medicare that President Barack Obama has rejected.

Their plan would reduce debt as a share of GDP below 70 percent by 2023, compared with 73 percent by that year in Obama’s budget released this month and 55 percent in House Republicans’ budget.

“The most fundamental issue that can be addressed at this stage is getting the budget under control,” Greenspan said. The Simpson Bowles plan is “the only vehicle that is going to lead to a solution to bring the debt down in a permanent and credible way.”

‘Don’t Talk’

Signs of economic strength are emerging. The Standard & Poor’s 500 Index of stocks has gained 10.6 percent this year, touching a record high on April 111.

Still, while the Fed has injected more than $2.5 trillion into the economy since 2008 to revive growth, GDP is forecast to grow 1.9 percent this year, below the 2.5 percent average the past two decades, according to the median estimate in a Bloomberg News survey of 93 economists.

Debt has dominated the partisan Washington budget debate, with federal deficits topping $1 trillion for four years before falling to a projected $845 billion in fiscal 2012 ending Sept. 30. Obama has sought a deal with congressional Republicans that would include raising revenue through taxes along with making budget cuts.

“The two sides don’t talk to each other,” Greenspan said, comparing the mood in Washington now to that during his time as chairman of the Council of Economic Advisers in the 1970s, when President Gerald Ford sparred with Speaker of the House Thomas “Tip” O’Neill Jr. “Gerry used to pound away at Tip from 9 to 5, then at 6 Tip would show up at the West Wing and have a bourbon with Gerry.”

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