It had been a while, so I was wondering when we were going to hear from good ole' Alan Greenspan again. Well, the former Fed Chair must have been feeling a little neglected/ignored, so he emerged from his hole yesterday to comment on the economy, see his shadow, and run back underground. Greenspan noted that the inevitable adjustment in the U.S. current account deficit is not a huge problem. Speaking at the annual meeting of the International Monetary Fund and World Bank, Greenspan noted that there is no reason why the adjustment in the current account deficit should have an impact on the real economy and employment. Greenspan doesn't believe that swings in terms of trade, interest rates, and foreign exchange rates will feel an impact from the deficit.
Greeny did note that the process could be quite painful for us and our trading partners, if protectionism gains ground and fiscal deficits continue. He stated that what is important is the level of debt, not whether the debt is owed to foreigners or Americans. Greenspan also stated that debt levels in relation to income have been rising for a century, but only recently have cross-border flows of savings become important. Before wrapping up, Greenspan had to comment on August's financial turmoil, noting that it was an accident waiting to happen, and that something had to give.