Greenspan/Trade by munificent Blog entry

Blog: Spirit of Money, Financial Fluidity
by munificent

Greenspan/Trade

Oh well, it's not like the common joe hasn't thought this- I mean I was "concerned" about USA/Japan when I was at Morgan Stanley in the early 80's and here we are in the mid 2000's having the same conversation- Hey are we in a Time Loop?

Date: 12/3/2005 9:57:02 AM ( 19 y ) ... viewed 1704 times

Greenspan Points to Danger of Rising Budget Deficits

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By HEATHER TIMMONS
Published: December 3, 2005
LONDON, Dec. 2 - Alan Greenspan, the chairman of the Federal Reserve, warned of the dangers of rising budget and trade deficits in two speeches on Friday.

Speaking at a meeting here of the Group of 7 finance ministers, he said the growing American trade deficit could be "quite painful" for the world economy if it was not arrested. He urged the United States and other countries with trade deficits to stop the "pernicious drift toward fiscal instability."

If that instability "is not arrested and is compounded by a protectionist reversal of globalization," he went on, "the adjustment process could be quite painful for the world economy."

In a separate videotaped speech to the Philadelphia Federal Reserve Bank's policy forum, he said the nation had weathered hurricanes Katrina, Rita and Wilma well and noted that the economy was expanding at a good pace. But he cautioned that the United States budget position "will substantially worsen in the coming years unless major deficit-reducing actions are taken."

Mr. Greenspan, 79, who is leaving his post at the end of January, has been touching on similar themes in recent months. He seems to want to end his career with a firm call for fiscal discipline.

In the videotaped speech, he said that policy makers needed to restore "procedural restraints on the budget making process" that had been "violated with increasing frequency" since the end of the 1990's and were allowed to expire in 2002.

The nation's budget problems will not be solved just by enacting new rules, Mr. Greenspan added. "The fundamental fiscal issue is the need to make difficult choices among budget priorities," he said, and "this need is becoming ever more pressing in light of the unprecedented number of individuals approaching retirement age."

Baby boomers will start retiring in 2008, Mr. Greenspan noted, putting stress on Social Security. In addition, the "soaring cost of medical care" for the aging population will place "enormous demands on our nation's resources."

He said he did not believe that major increases in taxes were the solution.

"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, adding that the government should seek to "close the fiscal gap primarily, if not wholly, from the outlay side."

Mr. Greenspan also seemed to suggest a later retirement age. "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," he said.

He urged that changes be made "sooner rather than later" to the system. "We owe future retirees as much time as possible to adjust their plans for work, saving and retirement spending," he said.

Similar discussions are under way in other countries. Earlier this week, Britain's pension commission recommended raising the retirement age to 67 from 65, and possibly higher, to make sure there is enough money in public coffers.

In discussing trade deficits in his speech in London, Mr. Greenspan admitted that "we do not as yet have a firm grasp of the implications of cross-border financial imbalances." But, he said, deficits that "cumulate to ever-increasing net external debt, with its attendant rise in serving costs, cannot persist indefinitely."

The London meeting was in part a salute to Mr. Greenspan. Sir Alan, as he is known in Britain (he was knighted in 2002 for his contributions to the world's economic security), was given several gifts by Britain's finance minister, Gordon Brown, including a handwritten copy of the Stamp Act, which helped spur the American Revolution, and a handwritten record of the dividend paid to George and Martha Washington by the Bank of England from a bond that raised money to pay the cost of keeping British troops in the United States.