"But the economic fundamentals remain firm, and the U.S.
economy appears to retain important forward momentum,"
Greenspan said. "The longer-term prospects for the U.S.
economy remain favorable."
Greenspan warned, however, that large budget deficits will
drive up interest rates over time, raising the
government's debt-service costs. "Unless the situation is
reversed, at some point these budget trends will cause
serious economic disruptions," he said.
Greenspan also repeated that he favors extending recently
enacted tax cuts that are scheduled to expire in coming
years but only if they are offset by spending cuts of
similar value so they do not boost the deficit.
This article can be taken as a primer on neoliberalism:
tax cuts for the wealthy, reduced services for people, and
that is called a 'successful economy'. Jobs lost to exploited
third-world workers are "good" because that reduces
inflation, which is good for the banks. An informative
piece.
Greenspan has led the central bank for more than 18 years.
The White House announced yesterday that he would be
awarded the Presidential Medal of Freedom, the nation's
highest civilian honor, in a ceremony next week.
rkm
--------------------------------------------------------
http://www.washingtonpost.com/wp-dyn/content/article/2005/11/03/AR2005110300220.html
washingtonpost.com
Greenspan Reiterates Warning on Deficits
By Nell Henderson
Washington Post Staff Writer
Friday, November 4, 2005; D03
Federal Reserve Chairman Alan Greenspan said yesterday
that the U.S. economy is in generally good health but will
suffer in coming years unless Congress slows the growth of
federal budget deficits.
Recent hurricanes Katrina, Rita and Wilma will temporarily
reduce employment and economic activity, Greenspan said at
a hearing of Congress's Joint Economic Committee, his last
scheduled public appearance on Capitol Hill before he
leaves office Jan. 31.
More than 520,000 people filed initial claims for
unemployment insurance benefits because of the storms, the
Labor Department reported yesterday.
"But the economic fundamentals remain firm, and the U.S.
economy appears to retain important forward momentum,"
Greenspan said. "The longer-term prospects for the U.S.
economy remain favorable."
Greenspan warned, however, that large budget deficits will
drive up interest rates over time, raising the
government's debt-service costs. "Unless the situation is
reversed, at some point these budget trends will cause
serious economic disruptions," he said.
Greenspan also repeated that he favors extending recently
enacted tax cuts that are scheduled to expire in coming
years but only if they are offset by spending cuts of
similar value so they do not boost the deficit.
"We should not be cutting taxes by borrowing," Greenspan
said, sticking to a position at odds with the White House
and Republican congressional leadership. "We should be
cutting taxes by reducing the level of spending."
Greenspan supported tax cuts in early 2001, when the
budget was in surplus. But Congress ignored his suggestion
that year that they include "triggers" that would cancel
or reverse the tax cuts if deficits reappeared, as they
did in 2002.
The deficit reached $319 billion in the federal fiscal
year 2005, which ended Sept. 30, down from a record $413
billion the year before. It is projected to increase in
coming years as the large baby-boom generation starts
collecting federal retirement and health benefits.
Congress also has dismissed Greenspan's repeated urging
that it impose budget controls like those in place from
1990 through 2002. They included caps on discretionary
spending and so-called pay-as-you-go -- or "paygo" --
rules that required any changes in taxes or spending be
offset by other measures so they caused no increase in the
deficit.
The White House and Republican leadership oppose
reinstating the paygo rules because they would make it
very difficult politically to make the tax cuts permanent.
Democrats support restoring the rules.
"Our budget position is unlikely to improve substantially"
without such constraints, Greenspan said yesterday. "We
have got to put in place a structure which will enable the
Congress to make rational choices. . . . There are no easy
choices. The easy choices are long gone."
Greenspan has led the central bank for more than 18 years.
The White House announced yesterday that he would be
awarded the Presidential Medal of Freedom, the nation's
highest civilian honor, in a ceremony next week. Several
lawmakers yesterday lauded his accomplishments and thanked
him for his service.
"You have guided [Fed policy] through stock market
crashes, wars, terrorist attacks and natural disasters
with a steady hand," committee Chairman Jim Saxton
(R-N.J.) said at the outset of the hearing. "You have made
a great contribution to the prosperity of the U.S. and the
nation is in your debt."
Greenspan thanked the committee members for their kind
words but gave much of the credit for the low inflation of
recent years to forces beyond the Fed's control. One was
the surge in labor productivity, or output per hour
worked, over the past decade that resulted from advances
in computers, telecommunications and business practices.
Another is the continuing addition to world markets of
hundreds of millions of workers from the former Soviet
bloc countries, China and India. Their entry into the
global economy has restrained the rise of labor costs and
helped contain inflation, Greenspan said.
However, he said, the shift of much of the world's
workforce from centrally planned economies into the global
market economy will occur over time. And as it is
completed, he said, the suppression of world inflation
will "gradually end."
Undeterred, several lawmakers insisted on giving credit to
the departing Fed chairman.
"Mr. Greenspan, I just want to say that we are going to
miss you, really miss you," said Rep. Maurice D. Hinchey
(D-N.Y.). "I think that you've probably been one of the
most effective chairmen of the board in the history of the
Federal Reserve. . . . You've done one heck of a job."
(C) The Washington Post Company
--
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