Greenspan confident U.S. financial markets can adapt to Treasury debt paydown

WASHINGTON (AFX) - Federal Reserve board chairman Alan Greenspan said he is confident that U.S. financial markets can adapt to the reduction of Treasury debt held by the public."I am confident that U.S. financial markets, which are the most innovative and efficient in the world, can readily adapt to a paydown of Treasury debt by creating private alternatives with many of the attributes that market participants value in Treasury securities," Greenspan said in testimony prepared for delivery to the Bond Market Association.The Fed chairman said the lack of supply of Treasury securities "might be a bigger problem for international investors than for domestic investors, because they may be less well informed about U.S. corporations" and may have a strong preference for U.S. government instruments."In such circumstances, foreign investors may reduce, on net, their holdings of overall dollar assets as Treasury securities are paid down," he said."By itself, such diminution in the demand for U.S. dollar assets would tend to raise interest rates for U.S. borrowers, and, conceivably, put downward pressure on the dollar's exchange rate. However, the evidence of the past year and a half gives little support to this notion. Foreign private investors, on net, have run off their holdings of U.S. Treasury securities, while they have built up their holdings of private dollar assets by an even larger amount, and the foreign exchange value of the dollar has appreciated," he said.Greenspan said that even though the supply of Treasury securities will dwindle and may not be available for some period of time, at some point "demographic forces are likely to cause unified budget deficits to re-emerge at some point in the future and fresh supplies of Treasury securities to be issued." 

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