Former Federal Reserve chairman Alan Greenspan is afraid, but not of unemployment, nor a stagnating economy. He's scared of the federal debt.
"We are running out of time," Greenspan told commentator's on CNBC's Squawk Box early Friday morning, referring to Congress not yet raising the legal borrowing limit of the U.S. government. "There is a limit to how much the United States Treasury can borrow. We never came close to that [limit] since 1791."
The solution, he suggests, is a combination of tax increases and spending cuts by the federal government.
"I'm a free-market economist from years and years back and I've never veered from that," Greenspan told CNBC. "The fact that I am in favor of going back to the Clinton-era tax structure is merely an indication of how scared I am about how this debt problem and its order of magnitude."
Greenspan's support for higher taxes stands in contrast to his stance earlier this year that "government activism" and the "frenetic pace of new financial regulations" in the wake of Dodd-Frank financial reform were collectively slowing the economic recovery.
Still, Greenspan says, that the U.S. has a debt ceiling at all need not be necessary. In fact, the current economic panic could be avoided if the U.S. had no maximum level of borrowing power.
"I think the whole issue of a debt ceiling makes no sense to me whatsoever," Greenspan said. "Anybody who is remotely adroit at arithmetic doesn't need a debt ceiling to tell you where you are."
Greenspan himself can't conceive of an all-out U.S. default, no matter the current political debate over spending cuts, but he does think it possible that the U.S. could cut parts of other obligations, meaning public services and programs like Medicare, Medicaid and Social Security.
Last year, Greenspan testified before Congress saying he was "wrong 30 percent of the time" during the roughly 19 years he headed the Federal Reserve. Lowering interest rates and deregulation of the banking market, both of which occurred on his clock, have been blamed by several high-profile economists, most prominently Paul Krugman, as being a major factor in the 2008 Financial Crisis and subsequent recession.
Watch the CNBC segment here: