One of the biggest challenges posed by the fiscal cliff is enacting reforms that don’t hurt the economy in the short run while establishing a sustainable long-run solution to the country’s rising budget deficits.
But maybe too much emphasis is being placed on the short-run risk to the economy, former Federal Reserve Chairman Alan Greenspan said Friday.
“If the cost of getting out from under this problem is a moderate recession, I would say it is a cheap price,” Greenspan said at an event hosted by the nonpartisan Peter G. Peterson Foundation. The nonpartisan Congressional Budget Office has estimated that the economy will enter a recession in the first half of 2013 if nothing is done to address the year-end threats of tax hikes and spending cuts that make up the cliff.
“Somehow thinking we're going to get through this thing without paying, that's a load of nonsense,” Greenspan said.
Greenspan cautioned that problems in the markets as a result of fiscal concerns are likely to creep up rapidly. “The one thing about markets is they don’t give you any advance notice,” he said.