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| Greenspan Renews Warning On Deficits | |
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| Tweet Topic Started: Dec 3 2005, 03:37 AM (245 Views) | |
| abuturab82 | Dec 3 2005, 03:37 AM Post #1 |
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Greenspan renews warning on deficits By Glenn Somerville LONDON (Reuters) - Federal Reserve Chairman Alan Greenspan offered twin warnings at home and abroad on Friday about the urgency for the United States to tackle its huge budget deficits to preserve the global economy's health. In a keynote speech in London ahead of his final appearance as a key participant in a Group of Seven finance ministers' gathering, Greenspan deplored a move toward unstable budgets and trade protectionism that could trigger a messy unwinding of world financial imbalances. "If...the pernicious drift toward fiscal instability in the United States and elsewhere is not arrested and is compounded by a protectionist reversal of globalization, the adjustment process could be quite painful for the world economy," he told a conference. The 79-year-old Greenspan, who steps down at the end of January, appeared intent on rounding out his 18-year tenure with a sharper call for discipline in government spending while time remains to get U.S. finances under control. In a taped address earlier in the day to a Philadelphia Fed conference, Greenspan said that U.S. spending on defense and homeland security will slow eventually but "our budget position will substantially worsen in the coming years unless major deficit-reducing actions are taken." "In the end, the consequences for the U.S. economy of doing nothing could be severe," the Fed chief warned. The themes were familiar ones for Greenspan, who was honored with the Freedom of the City of London on Friday just ahead of the formal meetings of finance chiefs from the United States, Britain, Canada, France, Germany, Italy and Japan. But they were delivered with feeling and with a reminder that the Bush administration must come to grips with the fact that it has not acted to prepare for rising costs of health and retirement programs as America's "baby boom" generation approaches retirement. CUT SPENDING NOW "Tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base," he said, reiterating his conviction that the government should seek to "close the fiscal gap primarily, if not wholly, from the outlay side." It is not only U.S. budget deficits that have swollen but also its deficit on trade with the rest of the world as measured by the current account, which now exceeds 6 percent of total national output. That shortfall is covered by borrowing. The United States has had no difficulty financing the record shortfall but Greenspan repeated that, at some point, foreigners could baulk at buying ever-increasing amounts of U.S. debt securities. He also raised the possibility the widening in that gap, which shows the United States consuming more than it produces, reflected a long-term march toward a more financially sophisticated and integrated global economy -- suggesting some degree of sustainability. "Hard data documenting these global developments at the appropriate microlevel are regrettably sparse," Greenspan said. "Yet anecdotal, circumstantial, and some statistical evidence is suggestive that the historically large current account deficit of the United States may be part of a broader set of rising unconsolidated deficits and accumulated debt that is arguably more secular than cyclical." In his Philadelphia remarks, Greenspan said the U.S. economy was growing "at a reasonably good pace" heading into 2006 but he cautioned the United States' inevitably will be affected by an aging population and it was not well-prepared for that. "I fear that we may have already committed more physical resources to the baby boom generation in its retirement years than our economy has the capacity to deliver," Greenspan said, adding changes to Social Security and other programs "should be made sooner rather than later" to ease disruption. Raising the national saving rate is also an important stop to meet retirees' needs "without unduly curbing the standard of living of our working age population," he said. © Reuters 2005. All Rights Reserved. http://today.reuters.com/business/newsArti...REENSPAN-DC.XML |
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2:07 PM Jul 11