Monday, December 19, 2005
Greenspan: U.S. Deficit May Hurt Economy
Friday December 2, 4:24 pm ET
Alan Greenspan Warns U.S. Budget Deficit, Backlash Against Trade Deficits May Disrupt Economy WASHINGTON (AP) -- Outgoing Federal Reserve Chairman Alan Greenspan warned Friday that America's exploding budget deficit and a protectionist backlash against soaring trade deficits could disrupt the global economy.
On a day when he was being honored in London for his nearly two decades in the world's highest profile economic job, Greenspan restated some familiar worries.
He said U.S. deficits are set to soar with the pending retirement of 78 million baby boomers and he suggested that Congress consider trimming Social Security and Medicare benefits because the government probably has promised more than it can afford, especially in health benefits.
If something isn't done to trim benefit costs, the resulting budget deficits would "cast an ever-larger shadow" over the future living standards of Americans, Greenspan said in a taped speech delivered to a conference sponsored by the Philadelphia Federal Reserve Bank.
Greenspan repeated his belief that the country's record trade deficits can be addressed through market forces without any harm to the economy.
But he said this benign outcome would be jeopardized if the United States and other nations did not get their budget deficits under control and if they made the mistake of making their economies less flexible by erecting trade barriers.
"If, however, the pernicious drift toward fiscal instability in the United States and elsewhere is not arrested and is compounded by a protectionist reversal of globalization, the adjustment process could be quite painful for the world economy," Greenspan said in a second speech, which he delivered to a conference in London.