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Sunday, September 25, 2005

Greenspan Says US Budget Deficit is Out of Control

Alan Greenspan told France’s Finance Minister that the United States has lost control of the deficit.  The Finance Minister also says that after talking to Greenspan and hearing his concerns over inflation he believes, though Greenspan did not say so explicitly, that there will be further increases in the target federal funds rate:

Greenspan to French Financial Minister:US lost deficit control, Reuters: U.S. Federal Reserve Chairman Alan Greenspan told France's Finance Minister Thierry Breton the United States has "lost control" of its budget deficit... "'We have lost control,' that was his expression," Breton told reporters after a bilateral meeting with Greenspan. "The United States has lost control of their budget at a time when racking up deficits has been authorized without any control (from Congress)," Breton said. "We were both disappointed that the management of debt is not a political priority today," he added. Ministers from the Group of Seven rich nations on Friday called for vigorous action around the world to curb rising imbalances in international trade and investment accounts. A decrease in the U.S. budget deficit were cited by the G7 as one way to ease those imbalances. ... Breton spoke as International Monetary Fund Managing Director Rodrigo Rato said U.S. plans to cut its government expenditures now looked ambitious in the light of huge reconstruction costs to be borne in the wake of Hurricane Katrina. Breton said: "The situation that is creating tension today on the currency market ... is clearly the American deficit." ... Breton added that after hearing Greenspan talk about inflation: "One has the feeling -- though he didn't say so -- that interest rates will probably continue to rise slightly until his departure."...

There was no indication that Greenspan drew any connection between his support of tax cuts in 2001 and the current deficit situation.

[UpdateBrad DeLong also notes these commentsTim Duy notes and interprets the breach of etiquette these comments represent.]

    Posted by on Sunday, September 25, 2005 at 01:00 AM in Budget Deficit, Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (0)


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