Fury Over Greenspan's Remarks About US Losing Budget Deficit Control

Monday, September 26, 2005

A Reuters report from Sunday that says Fed Chairman Alan Greenspan said the US has lost control of its budget deficit has created a fury in official American circles, the British Independent wrote in a follow up on Monday.
Alan Greenspan

First the most important parts from the Reuters story:
U.S. Federal Reserve Chairman Alan Greenspan told France's Finance Minister Thierry Breton the United States has "lost control" of its budget deficit, the French minister said on Saturday.
"'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. U.S. Treasury Secretary John Snow said the U.S. administration was still committed to halving its budget deficit by 2009.
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."
The United States needed to address its budget deficit, he said, adding: "It seems to me that my counterpart John Snow is completely aware of this, he wants to harness the problem, but it seems to me he doesn't have the room for maneuver."
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."

These statements were not received well in Washington where the White House is earmarking billions of greenbacks for rebuilding and war efforts on a daily basis. According to the Independent,
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."
I refer you to the post "US(SR) 6-Year Budget Plan Not Very Convincing" that focused on future US budgets and the fact that projected figures have already been very optimistic without the highway bill and hurricane clean-up costs.
The dollar traded half a cent lower in early Monday trading in Europe.
Greenspan will have two chances to explain his remarks at speeches he is scheduled to hold today and tomorrow. See the next post for an overview of this week's most important events for international financial markets.

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