Bloomberg News

Blinder Says U.S. Doesn’t Have Short-Term Deficit Problem

January 06, 2012

Jan. 6 (Bloomberg) -- The U.S. doesn’t have a short-term “deficit problem” and the proof is that “the world is clamoring to give us money at negative real interest rates,” former Federal Reserve Vice Chairman Alan Blinder said.

The U.S. isn’t plagued by “generalized overspending,” Blinder said on a panel at an economists conference in Chicago today. Health-care costs are the main source of concern, said Blinder, an economics professor at Princeton University in New Jersey.

The U.S. 10-year government bond yield has been below the annual inflation rate since May, allowing the government to borrow at so-called negative interest rates.

Blinder and Alice Rivlin, a senior fellow at the Brookings Institution in Washington and another former Fed vice chairman, said the divisive political environment in Washington is hurting efforts to trim the deficit.

The U.S. needs to address its short-term and long-term deficits together, Rivlin said. “We need to reassure our creditors and ourselves” that the U.S. won’t “become Greece in the foreseeable future.”

Both Democrats are Republicans need to tell Americans that the U.S. retirement system must be changed and Medicare won’t “survive in its current form,” said Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank in Washington.

“We have all the characteristics of countries that get in trouble,” including high debt and liabilities that aren’t transparent, such as mortgage debt, he said.

Holtz-Eakin was an economic adviser to U.S. Senator John McCain’s 2008 presidential campaign.

--Editor: Paul Badertscher, Gail DeGeorge

To contact the reporter on this story: Ian Katz in Chicago at ikatz2@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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