Re-Blogged From Newsmax
Former Federal Reserve Board Chairman Alan Greenspan warned that he is “beginning to see the first signs” of inflation in the U.S. economy.
“We’re seeing it basically in the tightening of the labor markets first, which, as you know, have gotten very tight now. We’re beginning finally to see average wages rise, and clearly there’s no productivity behind it,” Greenspan told Bloomberg TV.
Greenspan said a lack of productivity growth meant “you’re getting into a system now which has no outcome that’s in equilibrium other than inflation and no productivity growth.”
Greenspan spoke hours before the government announced that U.S. consumer prices increased by the most in nine months in October amid gains in the cost of gasoline and rents, pointing to steadily rising inflation that likely will keep the Federal Reserve on track to raise interest rates again next month.
Though overall inflation could slow in the months ahead following a recent slump in oil prices, economists said Fed officials were likely to regard any retreat as temporary and focus on underlying price pressures, Reuters explained.
The Labor Department said on Wednesday its Consumer Price Index rose 0.3 percent last month, the biggest gain since January, after edging up 0.1 percent in September. In the 12 months through October, the CPI increased 2.5 percent, picking up from September’s 2.3 percent rise.
Excluding the volatile food and energy components, the CPI climbed 0.2 percent. The so-called core CPI had gained 0.1 percent for two straight months. In the 12 months through October, the core CPI increased 2.1 percent after advancing 2.2 percent in September.
Meanwhile, Greenspan also warned a rising U.S. debt could stall economic growth while a tight labor market could stoke inflation.
“The tax cut actually did get a buoyancy, and we’re still feeling some of it, but it’s nowhere near enough to offset the actual deficit,” Greenspan said. “You can’t have a tax cut without finding the revenues elsewhere, or you run into problems,” he said.
Greenspan said curbing spending on Social Security, Medicaid and Medicare were key to putting the nation’s finances on a sustainable footing.
To be sure, the federal government recorded a deficit of $100.5 billion in October, a big increase from a year ago that was primarily caused by quirks in the calendar.
The Treasury Department says the deficit shot up 59 percent from the same month a year ago. Last year’s October deficit was smaller because the government paid $48 billion in benefits in September because Oct. 1 fell on the weekend.
The government has run a deficit in every October going back to the early 1950s. The new report begins a budget year in which the federal deficit is expected to soar above $1 trillion, reflecting in part the $1.5 trillion in tax cuts Congress approved last December, the Associated Press reported.
In its latest review this summer, the administration projected that the deficit would climb to $1.09 trillion this year and stay above $1 trillion for three straight years.
The only time the government has run deficits of this size was for four years from 2009 through 2012. Government revenues at the time were depressed by the worst recession since the 1930s.