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The U.S. federal budget deficit is so large that the nation must
consider tax increases, including a value-added tax, former Federal
Reserve Board Chairman Alan Greenspan said Friday.
Former Fed Chairman Alan Greenspan is worried about the debt. (Getty
Images)
?I don?t like the value-added tax, but it?s the least worst
way? to raise revenue, Greenspan said at forum sponsored by the
Atlantic magazine and the Aspen Institute. He said introduction of a
VAT, or national sales tax, could be paired with broader tax reform
and cuts in federal spending.
Medicare, a federal health program for older Americans, is one source
of budget strain, and Greenspan suggested significantly increasing
co-payments for wealthier Medicare recipients as a way to curb federal
spending.
Greenspan expressed concern about the ever-expanding owing borrowing
by the U.S. government, predicting that if it isn?t checked, the
value of the U.S. dollar, compared to gold and others currencies, will
decline.
Greenspan doesn?t see inflationary signs yet, but cautioned that the
Fed eventually will have to start unwinding massive financial aid to
U.S. markets that has doubled the size of assets on its balance sheet.
While disinflationary effects of the recession are likely to linger
until sometime next year, giving the Fed some leeway, Greenspan said
the central bank can?t wait too long, ?because that will create a
major increase in inflation? probably in 2012.
?There?s no doubt what has to be done and people at the Fed are
very acutely aware of this,? he said.
Turning to the recent market meltdown, Greenspan said it demonstrated
that capital standards for financial companies were too low and must
be raised. But, he said regulators should not be expected to forecast
or prevent future financial meltdowns, since ?what happens in a
crisis cannot be anticipated? even by the best-informed regulators.
Greenspan defended the use of derivative instruments such as credit
default swaps as an important hedging tool, while urging changes in
the way they are traded and tracked. He also urged policy-makers to
eliminate federal protections for financial firms deemed to be too
large or too important to be allowed to fail, or failing that, to
impose fees or taxes on such firms.