Federal Reserve Chairman Alan Greenspan said yesterday that future budget deficits pose a bigger risk to the economy than record trade imbalances and the country's extremely low savings rate.
In a wide-ranging speech, Greenspan said he believed the United States' flexible economy would be able to deal with current concerns over trade and savings.
A projected rise in the budget deficit as baby boomers retire poses a problem, Fed Chairman Alan Greenspan says.
(Kevin Lamarque -- Reuters)
"The resolution of our current account deficit and household debt burdens does not strike me as overly worrisome, but that is certainly not the case for our fiscal deficit," Greenspan said in prepared remarks to the Council on Foreign Relations in New York. A copy of his remarks was distributed in Washington.
The Fed chief said the budget deficit is a problem because it is projected to rise significantly as a wave of baby boomers start to retire in 2008.
"Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability," Greenspan said.
He has been steadily beating the drum about the urgent need for policymakers on Capitol Hill and the White House to get the nation's fiscal house in order.
On trade, Greenspan expressed hope that further declines in the value of the U.S. dollar would narrow the trade deficit, which mushroomed to an all-time high of $617 billion in 2004.
As he did in a November speech, Greenspan forecast that at some point foreigners will lose some of their appetite for U.S. investments. But he said such a scenario is likely to occur in an orderly fashion.