a default by Greece is “almost certain”

http://www.bloomberg.com/news/2011-06-16/default-by-greece-almost-certain-greenspan.html

Alan Greenspan, former FederalReserve chairman, said a default by Greece is “almost certain”and could help drive the U.S. economy into recession.

“The problem you have is that it’s extremely unlikely thepolitical system will work” in a way that solves Greece’scrisis, Greenspan, 85, said in an interview today with Charlie Rose in New York. “The chances of Greece not defaulting arevery small.”

Greek government bonds slumped, pushing the yield on thetwo-year note above 30 percent for the first time, as PrimeMinister George Papandreou’s failure to win support for moreausterity fueled speculation the European country will fail tomeet its obligations. More than 20,000 people protested inAthens this week against wage reductions and tax increases, withpolice using tear gas on crowds and strikes paralyzing ports,banks, hospitals and state-run companies.

The chances of Greece defaulting are “so high that youalmost have to say there’s no way out,” said Greenspan, who ranthe central bank from 1987 to 2006. That may leave some U.S.banks “up against the wall.”

Greece’s debt crisis has the potential to push the U.S.into another recession, Greenspan said. Without the Greek issue,“the probability is quite low” of a U.S. recession, he said.

“There’s no momentum in the system that suggests to methat we are about to go into a double-dip,” Greenspan said.

Economic data released today show confidence in theexpansion eroding among Americans and businesses, asunemployment remains above 9 percent.

U.S. Debt Limit

The U.S. recovery is being hindered by apprehension amongbusinesses over the long-term outlook, and there’s nothing morefor Fed policy makers to do, Greenspan said.

U.S. lawmakers are wrangling over spending cuts and budgetreforms as they seek an agreement to increase the $14.3 trilliondebt limit before Aug. 2, the date on which the TreasuryDepartment said it will have exhausted its borrowing authority.

The U.S. debt issue is becoming “horrendously dangerous,”said Greenspan, who added he doubts lawmakers have another yearor two to solve it.

After leaving the Fed, the former chairman founded theconsulting firm Greenspan Associates and became a consultant oradviser to Deutsche Bank AG, Pacific Investment Management Co.and Paulson & Co., a hedge-fund firm that profited from thecollapse of the U.S. subprime-mortgage market.

Greenspan, appointed Fed chairman by Republican PresidentRonald Reagan, was once described as “the greatest centralbanker who ever lived” by economist Alan Blinder, the centralbank’s former vice chairman.

He has since been blamed for contributing to the U.S.financial crisis by keeping interest rates low for too long andfailing to regulate the mortgage market, according to criticsincluding Allan Meltzer, a professor at Carnegie MellonUniversity in Pittsburgh, and members of the Financial CrisisInquiry Commission.