Fed's Gramlich-"desirable" to maintain U.S. saving
By Jonathan Nicholson
Monday June 11, 7:31 pm Eastern Time
WASHINGTON, June 11 (Reuters) - Federal Reserve Governor Edward Gramlich said on Monday it is important that the United States maintain the increase in national saving achieved through recent budget surpluses even amid uncertainty about what is to come when the national debt is eliminated.
``The high government surpluses in the late 1990s have led to high rates of national saving, which has helped finance high rates of capital investment and has been an important factor in the recent upsurge in productivity,'' Gramlich said in an address prepared for delivery at Georgetown University.
``From a macroeconomic standpoint it is highly desirable to remain on a fiscal track that produces budget surpluses or maintains high rates of national saving in other ways.''
SURPLUSES OFFSETTING LOWER SAVINGS
While saving by U.S. households has fallen in recent years, it has been offset by the continued rise in federal surpluses, which totaled $236.92 billion in the most recent fiscal year. Those surpluses have been partly used to gradually pay down the $3.313 trillion national debt held by private investors.
The Fed governor said the U.S. should confront the ``strange and unfamiliar'' issue of what to do with the surpluses once the debt is virtually paid off in coming years.
``Even if present rates of debt retirement do not continue, it will not be long before it becomes costly, or perhaps unwise, to retire remaining portions of this debt,'' he said. Some of the debt is held by investors who may not part with it inexpensively. Other portions are held by the Fed itself and other nations' central banks.
Gramlich said the government could use the mounting surpluses to try to boost private saving rates, reform Social Security through private investment, or simply buy domestic or foreign assets. But all of the options, he said, entail benefits and costs that should be carefully weighed.
OPTIONS HAVE PROBLEMS
Gramlich said studies show tax cuts have a poor track record in boosting private-sector saving.
He also said that privatizing Social Security poses the problems of how to politically wall off the vast influence the government would have through its holdings and how to ensure recipients do not carelessly fritter away their privatized shares.
In theory, the U.S. Treasury could directly invest in domestic assets, using an independent board to minimize political interference, Gramlich said. While recent experiences with state and local pension funds have been encouraging, he said, ``It is unclear whether this recent experience reflects new wisdom and safeguards for the funds or simply the good economic times of recent years.''
Political unwillingness to invest in foreign firms could be a problem for the final option, investing surpluses overseas. While that could affect the foreign exchange value of the dollar, it was not clear it would necessarily do so, he said.
``The dollar has been very strong in the present regime, and it is not obvious that things would change much in any new regime,'' Gramlich said.
While fiscal deficits, accompanied by high interest rates, have in the past raised currency values, the Fed governor said it seems large surpluses now, through low interest rates but high investment, productivity growth and stock values, may also raise the dollar's value.
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So who determines how much and what and from where, etc, foreign assets to be bought? The Fed is my guess.
The Federal Reserve System and Monetary Policy
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Go to here for the complete article on the United States Economy: encarta.msn.com
edit: I am not saying we need to be concerned about conspiracies. Just that we need to really take this matter seriously, ie ``strange and unfamiliar'' issue of what to do with the surpluses. And we maybe need to reevaluate the role the Fed plays, how the Fed came into being, and the effect of globalization in which the US will continue to be a sovereign nation. On a side note, I read an article where the protestors of globalization at the EU conferences are called anarchists. I guess I am an anarchist, then. But it is an issue that needs to be addressed in monetary policy, as well as domestic policy in regards to regulation of monopololies, etc. I think the GE Honeywell deal is a sweet deal for everyone, but is struck down by EU because GE is an American company. We have some issues to think about. |
