Alan Greenspan: "Zero Probability of Default"

Posted by Mike Tirone - Monday, August 8th, 2011

Former Federal Reserve Chairman Alan Greenspan spoke with CNBC's Meet the Press on Sunday and expects stocks to continue their decline following Standard & Poor's downgrade. 

“Considering the momentum in which the market went down over the last week, it is very unlikely, if history is any guide, that this isn’t going to take a while to bottom out. So the initial reaction in my judgment is going to be negative.”

Greenspan spoke about how this downgrade was more for psychological effect rather than anything else.

“This is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that. So, there is zero probability of default.

“What I think the S&P thing did was to hit a nerve, that there is something basically bad going on and it's hit the self esteem of the United States – the psyche – and its having a much profounder effect than I could perceive happening.”

As Bloomberg reports,

The Aug. 5 downgrade followed the biggest weekly selloff in U.S. stocks in 32 months, with the S&P 500 Index (SPX) slumping 7.2 percent to its lowest level since November. S&P’s managing director of sovereign ratings, David Beers, said he doesn’t expect markets to react significantly when they open tomorrow.

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