Monday, September 26, 2005

Greenspan Says USA has lost control of its Budget!

American fury over Greenspan leak
French claim Fed chairman admits US has lost control of budget

By Philip Thornton, Economics Correspondent in Washington
Published: 26 September 2005

From the Independent (UK)--
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 unsustainable," he said.

Rodrigo Rato, the head of the IMF, said US plans to cut government spending looked ambitious in the light of huge reconstruction costs as a result of Hurricane Katrina.

"The strategy to reduce expenditures is quite ambitious even before the new needs derived from the natural disasters that have affected the country," Mr Rato said. Finance ministers from the other G7 nations urged the US to pursue "fiscal consolidation".

In its communiqué, the G7 (which is the G8 nations excluding Russia) praised China for its decision in July to adopt a "dirty float" against a basket of currencies that allows the yuan to make limited daily moves.

"We expect the more market-oriented system to improve the functioning and stability of the global economy and the international monetary system," the G7 statement said.

In an apparent snub to Russia, the G7 said it would hold an extraordinary finance ministers' meeting in London in December rather than one in February, during the Russian chairmanship of the G8.

G7 sources said ministers were concerned over abuses of the rule of law that had seen leading businessmen imprisoned over the level of corruption with the former Soviet state.

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?