Fed chief: Don't spend surplus:
usatoday.com
Greenspan says best use is paying off national debt
By George Hager, USA TODAY
With President Clinton's budget set to kick off a debate over how to spend the ballooning budget surplus, Federal Reserve Chairman Alan Greenspan is warning Congress and the president that every extra dollar they use for spending programs or tax cuts just makes his job harder.
And, though Greenspan doesn't say so explicitly, it could make higher interest rates more likely.
Concerned that politicians could subvert the Fed's attempts to slow the economy and stave off inflation, Greenspan calls this a "crucial issue" and is aggressively asking Capitol Hill and the White House to devote as much of the surplus as they can to paying down the national debt.
"I would fear very much that these huge surpluses would undermine" the
hard-won fiscal discipline that helped balance the federal budget in the first place, Greenspan told the Senate Banking Committee at his Jan. 26 confirmation hearing.
In a speech Jan. 13, Greenspan said he hoped last fall's spending deal
between Congress and the White House -- in which they agreed to $30 billion or more in spending beyond the original budget caps -- was merely "an aberration."
This blunt talk is not new for Greenspan, who has long discomfited tax-cutters and spending advocates alike by insisting that the best use of the surplus is debt reduction. That, he says, will put the nation on a sounder footing in the short run and better enable it to pay huge baby boomer retirement costs .
But now it comes at a time when the Fed is raising interest rates to cool the economy. While politicians have agreed to set aside a big chunk of the surplus for Social Security, the rest is considered fair game. Fed policymakers worry that spending that money or using it for tax cuts could be like throwing gasoline on the fire of a hot economy.
That "is not what we need right now," says Alice Rivlin, former Fed vice chair and onetime Clinton administration budget official. It "forces the Fed to raise interest rates more than it otherwise would."
The good news for Greenspan, analysts say, is that the combustible mix of a Democratic president and a GOP Congress trying to do business in an election year is more likely to lead to a stalemate or small changes than to massive spending programs or tax cuts. |
