Budget deficit main threat to US

Federal Reserve Chairman Alan Greenspan has said future budget deficits pose a bigger risk to the US economy than record trade imbalances and America's extremely low savings rate.

    Alan Greenspan says deficits will harm long-term stability

    In a wide-ranging speech on Thursday, Greenspan said he believed the United States' flexible economy would be able to deal with current concerns over trade and savings.

    "The resolution of our current account deficit and household debt burdens does not strike me as overly worrisome, but that is certainly not the case for our fiscal deficit," Greenspan said in prepared remarks to the Council on Foreign Relations in New York.

    The Fed chief said the budget deficit is a problem because it is projected to rise significantly as a wave of baby boomers start to retire in 2008.

    "Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability," he said.

    Fiscal order

    Greenspan has been steadily beating the drum about the urgent need for policy-makers on Capitol Hill and the White House to get the nation's fiscal problems sorted out.

    While Greenspan has endorsed President George Bush's move to set up personal investment accounts as part of an overhaul of social security, he has called for a go-slow approach to the setting up of such accounts.

    His concern is that massive government borrowing to bring them about could push up interest rates.

    Greenspan also suggested that benefit cuts would be required to deal with looming funding problems within social security.

    "What we know for sure, however, is that the 30 million baby boomers who will reach 65 years of age over the next quarter century are going to place enormous pressures on the ability of our economy to supply the real benefits promised to retirees under current law," Greenspan said.

    SOURCE: Agencies


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