Greenspan Warns Congress of Long-Term Economic Danger

    April 22, 2005

Federal Reserve Chairman Alan Greenspan warned congress that the U.S. budget deficits are a threat to the long-term economic health of the country.

Greenspan claims that congress can not deliver all that it has promised, and that it has to make big changes in the way it handles finances.

According to a New York Times article,

“In the fiscal year ended Sept. 30, 2004, the federal budget ran a deficit of $412 billion, or about 3.5 percent of the nation’s gross domestic product, according to the Congressional Budget Office. Moreover, the size of federal debt relative to G.D.P. has “risen noticeably” since bottoming out in 2001, Mr. Greenspan told the Senate Budget Committee.

Although Mr. Greenspan in 2001 approved the tax cuts that helped take the federal budget from a surplus to its current deficit, he has increasingly pointed to the dangers of the shortfall, saying it can lead to higher interest rates as the government’s revenues fall. Congress has nonetheless expanded its spending.”

“Every successive testimony, I can see him getting more and more impatient,” said David Wyss at Standard & Poor’s. “It’s like, ‘Why don’t you idiots get this – that you can’t continue spending more than you take in?’ ”

The U.S. has been pressuring China to stop directly linking the yuan to the dollar, but China says it needs more time.

An AP article says:

“On the fiscal front, Greenspan said the persistence of swollen budget deficits in the years ahead “would cause the economy to stagnate or worse” unless the situation is reversed.

The budget deficit is a problem because it is projected to rise significantly as the first of 78 million baby boomers start to retire in 2008.”

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