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Greenspan warns about US budget and trade deficits

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mrj

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Hasn't Greenspan been replaced, or hasn't that taken effect yet?

If it has, why is a "has been" making such a "news release"?

Not that there isn't plenty of "pork" that could and should be cut from the budget.

MRJ
 

mrj

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reader (the Second) said:
Rest of the article about Greenspan, who I would hardly label a "has been." He is still the head of the Federal Reserve and he is among the top such senior managers at the Fed in history. In fact his replacement was picked because he promises to follow Greenspan's philosophies.
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In a separate videotaped speech to the Philadelphia Federal Reserve Bank's policy forum, he said the nation had weathered hurricanes Katrina, Rita and Wilma well and noted that the economy was expanding at a good pace. But he cautioned that the United States budget position "will substantially worsen in the coming years unless major deficit-reducing actions are taken."

Mr. Greenspan, 79, who is leaving his post at the end of January, has been touching on similar themes in recent months. He seems to want to end his career with a firm call for fiscal discipline.

In the videotaped speech, he said that policy makers needed to restore "procedural restraints on the budget making process" that had been "violated with increasing frequency" since the end of the 1990's and were allowed to expire in 2002.

The nation's budget problems will not be solved just by enacting new rules, Mr. Greenspan added. "The fundamental fiscal issue is the need to make difficult choices among budget priorities," he said, and "this need is becoming ever more pressing in light of the unprecedented number of individuals approaching retirement age."

Baby boomers will start retiring in 2008, Mr. Greenspan noted, putting stress on Social Security. In addition, the "soaring cost of medical care" for the aging population will place "enormous demands on our nation's resources."

He said he did not believe that major increases in taxes were the solution.

"Tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base," he said, adding that the government should seek to "close the fiscal gap primarily, if not wholly, from the outlay side."

Mr. Greenspan also seemed to suggest a later retirement age. "I fear that we may have already committed more physical resources to the baby boom generation in its retirement years than our economy has the capacity to deliver," he said.

He urged that changes be made "sooner rather than later" to the system. "We owe future retirees as much time as possible to adjust their plans for work, saving and retirement spending," he said.

Similar discussions are under way in other countries. Earlier this week, Britain's pension commission recommended raising the retirement age to 67 from 65, and possibly higher, to make sure there is enough money in public coffers.

In discussing trade deficits in his speech in London, Mr. Greenspan admitted that "we do not as yet have a firm grasp of the implications of cross-border financial imbalances." But, he said, deficits that "cumulate to ever-increasing net external debt, with its attendant rise in serving costs, cannot persist indefinitely."

The London meeting was in part a salute to Mr. Greenspan. Sir Alan, as he is known in Britain (he was knighted in 2002 for his contributions to the world's economic security), was given several gifts by Britain's finance minister, Gordon Brown, including a handwritten copy of the Stamp Act, which helped spur the American Revolution, and a handwritten record of the dividend paid to George and Martha Washington by the Bank of England from a bond that raised money to pay the cost of keeping British troops in the United States.

Actually, I got on the computer to correct my error after I read another excerpt of that story stating the fact of Greenspans' January 31 departure.
I'm not sure his tinkering has always been successful, and wonder if people with that much power might not get a little carried away with it and micro-manage to a greater degree thatn is healthy for the economy.

Though I do realize there are many other factors pushing and pulling on the US and the world economies, and that there are probably those whose interests are counter to those of the USA, and some within the USA who attempt their own "magic" that makes it difficult to keep the private enterprise system working properly.

MRJ
 

Econ101

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MRJ, Greenspan's steady hand on monetary policy has created the best environment business could have. He has been an excellent Fed Chairman and has done his job as profficiently as any government official. The fed's job is to control the amount of money in circulation so that the economy runs smoothly without deflation or inflation. A slight inflationary trend is better than deflation and that is where Greenspan has been with monetary policy.

The fed uses its power of setting interest rates for banks as one of its main tools to control monetary policy (there are a few other tools available). It is the most important financial management job in the world.

Monetary policy is a tricky thing in part because of something called the velocity of money. That is how fast people use money and how fast if moves around in the economy(depends on consumer confidence, durable goods orders, and a few other things). You can think of the velocity of money like world trade, except there are no trade barriers.

When we have a good fed chairman, the monetary policy is working at its most efficient point. That is one of the most important positions in the government. It is the throttle of capitalism.
 

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