Budget Deficit Is Big Threat: Fed Chairman :: Namibia Internet Gateway cc ::

Articles: Budget Deficit Is Big Threat: Fed Chairman

Posted by admin on Friday, May 07, 2004 - 12:33 AM

Federal Reserve Chairman Alan Greenspan rattled the stock market Thursday as he fretted about the long-term harm done by a swelling federal budget deficit.
In a satellite speech to a conference at the Chicago Federal Reserve, Greenspan said deficits are a "significant obstacle" to stability, though they have yet to put upward pressure on interest rates. "We have legislated commitments to our senior citizens that, given the inevitable retirement of our huge baby-boom generation, will create significant fiscal challenges in the years ahead," he said. He noted the federal government had gone from a surplus in 2000 to a projected deficit of 4.25% of GDP. The administration has forecast a $521 billion shortfall this year, though higher tax receipts suggest the actual gap will be significantly less. Greenspan said the federal budget deficit worried him more than the trade deficits or high household debt because those other two projects can be corrected by market forces. His comments seemed to spook the stock market, which sold off before a late-day rally trimmed those losses. He said the U.S, was able to weather the high deficits, at least for now, because of a "one-time shift in the degree of globalization and innovation." "Globalization has altered the economic frameworks of both advanced and developing nations in ways that are difficult to fully comprehend. . . . Adam Smith's 'invisible hand' remains at work on a global scale," Greenspan said. He added that exposing our economy to the rigors of international competition and comparative advantage has helped keep domestic prices down. But there's only so much globalization can do. Responding to a question about China, Greenspan said its growth will likely slow to a more sustainable level. That would help ease steel and other commodity prices. "Indeed, we've already seen it. Scrap steel prices are down quite significantly from their peak several weeks ago, and a number of the other metals have either flattened out or edged lower," he said.

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