Cherry
11-19-2004, 03:06 PM
Greenspan: U.S. trade gap could hurt economy
WASHINGTON - The persistence of bloated U.S. trade deficits over time can pose a risk to the U.S. economy, which thus far has proven resilient, Federal Reserve Chairman Alan Greenspan warned Friday. Policy-makers must not get lulled into a sense of complacency, he said.
The broadest measure of trade, called the current account deficit, swelled to an all-time high of $166.2 billion in the second quarter of this year, the most recent period for which this information is available.
Greenspan told a banking conference in Frankfurt the United States should cut its record budget gap to help narrow the shortfall in its current account and avoid a need to offer higher rates of return to retain foreign investment and painful economic consequences.
“Current account imbalances, per se, need not be a problem, but cumulative deficits ... raise more complex issues,” Greenspan said. A copy of his remarks was distributed in Washington.
So far, foreigners are willing to lend the United States money to finance the current account imbalances, Greenspan pointed out. The worry, however, is that at some point foreigners might suddenly lose interest in holding dollar-denominated investments. That could cause foreigners to unload investments in U.S. stocks and bonds, sending their prices plunging and interest rates soaring.
About bloody time someone noticed. Most Canadians I know pulled out of US stocks sometime this summer. Those left in are getting their butts kicked as the US dollar falls.
WASHINGTON - The persistence of bloated U.S. trade deficits over time can pose a risk to the U.S. economy, which thus far has proven resilient, Federal Reserve Chairman Alan Greenspan warned Friday. Policy-makers must not get lulled into a sense of complacency, he said.
The broadest measure of trade, called the current account deficit, swelled to an all-time high of $166.2 billion in the second quarter of this year, the most recent period for which this information is available.
Greenspan told a banking conference in Frankfurt the United States should cut its record budget gap to help narrow the shortfall in its current account and avoid a need to offer higher rates of return to retain foreign investment and painful economic consequences.
“Current account imbalances, per se, need not be a problem, but cumulative deficits ... raise more complex issues,” Greenspan said. A copy of his remarks was distributed in Washington.
So far, foreigners are willing to lend the United States money to finance the current account imbalances, Greenspan pointed out. The worry, however, is that at some point foreigners might suddenly lose interest in holding dollar-denominated investments. That could cause foreigners to unload investments in U.S. stocks and bonds, sending their prices plunging and interest rates soaring.
About bloody time someone noticed. Most Canadians I know pulled out of US stocks sometime this summer. Those left in are getting their butts kicked as the US dollar falls.