Greenspan says No Free Lunches
"Regrettably, The free lunch has still to be invented."
[Damn what a genius. No wonder he is FED chairman - Mish]
But take heart ...No housing collapse either
No free lunches Greenspan says to debt-hungry America
May 7, 2004
By Martin Crutsinger
Washington - The US's soaring federal budget deficit represented a major obstacle to long-term US economic stability, Federal Reserve chairman Alan Greenspan warned yesterday.
Greenspan told a banking conference that the federal budget deficit was a bigger worry to him than US's soaring trade deficit or the high level of household debt, because those two problems could be corrected by market forces.
"Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability because the budget deficit is not readily subject to correction by market forces that stabilise other imbalances," he said.
Greenspan noted that the federal deficit, which is expected to rise above $500 billion (R3.4 trillion) this year, would amount to 4.25 percent of the total economy.
Just a few years ago the country had a budget surplus.
He said one of the biggest concerns was that the deficits were occurring right before the first wave of baby boomers would begin retiring.
"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," Greenspan said.
He cautioned that the US should not be lulled into a false sense of security about the federal deficit just because at the moment interest rates on long-term treasury securities remained at low levels.
The dollar's foreign exchange value had remained close to the average level of the past two decades in spite of the soaring trade deficits and there had been no major economic disruptions triggered by the record levels of household debt.
"Has something fundamental happened to the US economy and, by extension, US banking that enables us to disregard all the time-tested criteria of imbalance and economic danger?" Greenspan asked.
Answering his own question, he said: "Regrettably, the answer is no. The free lunch has still to be invented."
Regarding the US trade deficit and the high level of household debt, he believed that market forces would provide the impetus to move those levels to more sustainable levels.
But his concern was that there were no market forces that would push the country to deal with the federal budget deficit.
Greenspan did not offer a solution to the budget deficit yesterday, although in the past he has called on the US congress to move quickly to address the looming funding difficulties in social security by trimming the benefits of future retirees.
He also said a rise in US interest rates was unlikely to trigger a collapse in the sizzling housing market.
A softening in the housing market was likely to be one of many adjustments that would occur in the wake of a rise in interest rates. |
