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Join Date: Aug 2005
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Greenspan warns of 'painful' adjustments for economy
Greenspan warns of 'painful' adjustments for economy
By Martin Crutsinger, AP Economics Writer WASHINGTON — Federal Reserve Chairman Alan Greenspan expressed concerns Friday that America's failure to deal with its exploding budget deficit and worldwide efforts to erect trade barriers could disrupt the global economy. Speaking at an economic conference in London, Greenspan said that so far the United States has had no problem financing its current account trade deficit, which last year hit a record $668 billion, because of the flexibility of the American economy. But he said such flexibility would be threatened by rising protectionism, which would increase barriers to the flow of goods and investments across the U.S. border. He also worried about the harm that could be done if the United States and other nations do not get their budget deficits under control. "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," Greenspan said in his prepared remarks, which were released in Washington. The London speech represented the second warning Greenspan delivered Friday on the threats posed by rising budget deficits. In an earlier speech, he had said that there could be severe consequences for the U.S. economy if policymakers do not attack a federal budget deficit that is projected to soar with baby boomer retirements. In that taped speech to a conference in Philadelphia, Greenspan said that Congress would likely have to make "significant adjustments" in reducing benefits for future retirees. He said it appears the country has promised more than it can afford to deliver in Social Security and especially Medicare payments, given that health care costs have been exploding. Greenspan, who will step down as Fed chairman after more than 18 years on Jan. 31, used both of the Friday speeches to return to themes he has been emphasizing over the past two years. He said that the looming retirement of 78 million baby boomers will put severe strains on the country's finances and without changes could disrupt the economy by driving up interest rates from the increased government borrowing. And he said that the nation's huge trade deficits can be financed as long as the country does not jeopardize the flexibility of the U.S. economy in such ways as increasing protectionist barriers. "If the currently disturbing drift toward protectionism is contained and markets remain sufficiently flexible," Greenspan said, then a rise in Americans' savings rates and other adjustments needed to reduce the U.S. trade deficit should proceed without problems. Greenspan was in London to attend his final meeting of finance ministers and central bank president of the world's seven largest economies. In addition to their normal discussions of the global economy, the Group of Seven finance officials were going to honor Greenspan with a retirement party, including a dinner Friday night, during the meetings. In the Philadelphia speech, Greenspan urged Congress to act quickly so that the baby boomers will have time to adjust to potential benefit cuts. Greenspan did not outline in Friday's speech what benefit cuts should be considered but in the past he has endorsed proposals such as raising the age at which retirees can draw full Social Security benefits. "The likelihood of growing deficits in the unified budget is of especially great concern because the deficits would drain a correspondingly growing volume of real resources from private capital formation and cast an ever-larger shadow over the growth of living standards," Greenspan said. "In the end," he warned, "the consequences for the U.S. economy of doing nothing could be severe." Greenspan made no mention in his prepared remarks of President Bush's stalled effort to overhaul Social Security by creating private accounts for younger workers. Greenspan has, in the past, endorsed the proposal but has said that Congress will need to do much more to put the government's huge retirement programs on sound financial footing. In a brief mention of current economic conditions, Greenspan said the economy has delivered a "solid performance" so far in 2005. "And despite the disruptions of hurricanes Katrina, Rita and Wilma, economic activity appears to be expanding at a reasonably good pace as we head into 2006." (Related: Employment recovers.) However, he said the positive short-term outlook for the economy is occurring against a backdrop of concern about the government's long-term fiscal health. "Our budget deficit will substantially worsen in the coming years unless major deficit-reduction actions are taken," Greenspan said, echoing comments he made most recently in an appearance Nov. 3 before Congress' Joint Economic Committee. He again called for Congress to reinstate budget rules that expired in 2002 that require any future increases in benefit payments or cuts in taxes to be paid for by cutting spending in other areas or increasing taxes. The Bush administration, which is trying to make the tax cuts of Bush's first term permanent, opposes covering those tax reductions by using the so-called pay-go rules. Greenspan said while both tax increases and spending cuts could be needed to deal with future budget deficits, he favored the use of spending reductions, especially in the area of the government's retirement programs because the current benefits did not seem to be sustainable. He said the size of the tax increases that would be needed to cover the shortfall in the retirement programs would pose "significant risks" to future economic growth.
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oldsam 73 911 |
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12-02-2005, 01:29 PM
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Team California
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He has obviously never consulted w/ Dick "deficits don't matter" Cheney. What a dilettante.
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Denis |
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12-02-2005, 04:07 PM
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This country is headed for a disaster because all politicians are whores selling their services to anyone w/ cash(or oil)
The Dems sell to the prolls, the Reps. to their corporate and evangelical masters. No one except a select few appear have the interests of the country as a whole at heart. Ross tried, John is trying, there are few others helping. 
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Bill Verburg '76 Carrera 3.6RS(nee C3/hotrod), '95 993RS/CS(clone) | Pelican Home |Rennlist Wheels |Rennlist Brakes | |
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12-03-2005, 04:37 AM
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Join Date: Apr 2002
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12-03-2005, 06:34 AM
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Unconstitutional Patriot
Join Date: Apr 2000
Location: volunteer state
Posts: 5,620
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Cuts in retirement programs will really hurt the boomers. However, I think the baby boomers have done enough to hurt themselves. Money Magazine conducted a poll in which 45% of baby boomers plan to work after retirement. The boomers claim they want to fight boredom. Yeah, right. The savings rates (money put away for the future) are absolutely horrible. The trend is the same among all ages, except for those who lived through post-Depression times. Americans should be ashamed.
Some argue a deficit at x% of the GDP is perfectly healthy, and I would disagree. A deficit is only healthy if the debt is invested in systems that will ensure the country's future prosperity. Instead, the deficit is being used to pay for future prosperity (governement entitlement programs). This would be like buying a Porsche 997 instead of paying for college tuition. One provides immediate satisfaction (albeit incredible), but the other provides means/potential for a lifetime. jurgen |
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12-03-2005, 06:55 AM
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Senior Member
Join Date: Jun 2000
Location: N. Phoenix AZ USA
Posts: 28,943
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Believe that a third party and two term limits are the only way. These people get entrenched in office or in the political world and never hold a real job the rest of their lives. This has to stop IMHO for things to change. Joe A
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2013 Jag XF, 2002 Dodge Ram 2500 Cummins (the workhorse), 1992 Jaguar XJ S-3 V-12 VDP (one of only 100 examples made), 1969 Jaguar XJ (been in the family since new), 1985 911 Targa backdated to 1973 RS specs with a 3.6 shoehorned in the back, 1959 Austin Healey Sprite (former SCCA H-Prod), 1995 BMW R1100RSL, 1971 & '72 BMW R75/5 "Toaster," Ural Tourist w/sidecar, 1949 Aeronca Sedan / QB |
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12-03-2005, 07:37 AM
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Southern Class & Sass
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Dixie Bradenton, FL 2013 Camaro ZL1 |
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12-03-2005, 01:39 PM
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The kiss of death to a democracy is when you get career politicians or even worse clans of career politicians. Might as well have a royal class and monarchy
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Bill Verburg '76 Carrera 3.6RS(nee C3/hotrod), '95 993RS/CS(clone) | Pelican Home |Rennlist Wheels |Rennlist Brakes | |
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12-03-2005, 02:04 PM
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1976 Porsche Carrera 3.0
1995 Porsche 993 Carrera Coupe
My Dragun
