Greenspan: “We have lost control of the budget.”


Richard Moore

'Lost control', or preparation for intentional collapse?


American fury over Greenspan leak

French claim Fed chairman admits US has lost control of budget
Russia receives G7 snub

By Philip Thornton, Economics Correspondent in Washington

The Independent, Online Edition Published: 26 September 2005

Bitter disagreements over global economic policy broke out
into the open yesterday as the French Finance Minister claimed
that Alan Greenspan had admitted America had "lost control" of
its budget while China warned the US to drop demands for
radical economic policy changes.

In an extraordinary revelation after a meeting between Thierry
Breton and Mr Greenspan, M. Breton told reporters: "'We have
lost control,' that was his [Mr Greenspan's] expression.

"The US has lost control of their budget at a time when
racking up deficits has been authorised without any control
[from Congress]," M. Breton said.

"We were both disappointed that the management of debt is not
a political priority today. The situation that is creating
tension today on the currency market ... is clearly the
American deficit."

The public comments, which were made during meetings between
the G8 nations and the International Monetary Fund, are
certain to anger the Bush administration and widen divisions
between the US and France over issues such as the Iraq war and
global warming.

A clearly irritated senior US Treasury source said: "Things
can get lost in translation."

A spokesman for the US Treasury said: "This administration is
absolutely committed to the President's goal of halving the
deficit as a percentage of GNP by 2009 and we have every
expectation of meeting that goal."

Meanwhile, Zhou Xiaochuan, the governor of China's central
bank, said it would not be pressured into suddenly abandoning
its currency regime.

He challenged claims that the blame for the global imbalances
could be laid at Beijing's door, hinting that it was driven by
the strength of domestic demand in the US.

Speaking at a meeting of the International Institute of
Finance, Mr Zhou said people were right to worry about
imbalances. "The US has always run a fiscal imbalance and
current account imbalance but in the recent two years we see
the magnitude of the deficits is historically high. People
start to worry," he said.

Mr Zhou added that China's currency regime, under which the
yuan was pegged to the dollar for 10 years until two months
ago, when it was allowed to float within a narrow band, was
not the sole cause. "For China, actually our statistical data
does not support significant elasticity of exports and imports
on exchange rates," Mr Zhou said.

In an apparent reference to the US, he said: "When internal
demand in a large economy becomes stronger it imports more and
exports less."

The central bank chief likened China's foreign exchange regime
to a "very big complicated machine", saying: "If you don't
know how to fix it, you should not dismantle the whole
machine. Chinese economic reform philosophy is gradualism."

But he played down fears that imbalances would inevitably lead
to a crash, saying the US's deficit of GDP could be
"tolerable". "Probably nobody knows whether it is really

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Richard Moore (rkm)
Wexford, Ireland

"Apocalypse Now and the Brave New World"

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