fiscal deficits

Simone Baribeau

Alan Greenspan, former Federal Reserve chief, warned today on the risks US social programmes – Medicare, Medicaid and Social Security – pose to the US’s ability to finance its deficits in testimony prepared for the Senate Committee on Homeland Security.

For more than two centuries, we have been able to hold the level of U.S. federal debt to well below our long-term capacity to borrow.

But for the next decade or two, on some reasonable sets of assumptions, our borrowing cushion shrinks significantly, threatening to test our capacity to raise funds to finance unprecedented deficits.

The challenge to contain this threat is more urgent than at any time in our history, in part because of today’s limited flexibility of adjustment, especially of entitlement spending whose constituencies are well entrenched.

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