Money, money, money...deficit, deficit, deficit.
Sept 19 , 2003 1800 PDT (FTW) -- Two stories warn of impending
financial crisis generated by U.S. government spending
and trade imbalances.
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trade gap could bring down dollar
Charlotte Denny and Larry Elliott
Friday September 19, 2003
The International Monetary Fund yesterday warned that
the colossal United States trade deficit was a noose around
the neck of the economy, emphasising that the once mighty
dollar could collapse at any moment.
Arguing that the world's big economies were already too
dependent on the willingness of American consumers to live
beyond their means, the IMF said the US could not continue
to run a current account deficit of 5% of GDP.
The IMF's chief economist Kenneth Rogoff said that it
was just a matter of time before the gap closed, tipping
the dollar into a potentially steep fall.
"If we were looking at a poor developing country, the
world gives them just enough rope to hang themselves. A
country like the United States, they give them enough rope
to tie the noose around their neck several times. But it
does happen in the end," he said.
In its twice yearly report on the world economy, the Fund
warns that even a controlled slide in the dollar's value
is likely to slow US growth and unless other countries
picked up the slack, the global economy would suffer.
Mr Rogoff said the collapse of world
trade talks last weekend in Cancun could spell disaster
for a global economy already too dependent on unbalanced
growth in the US. Describing the breakdown as a "tragedy",
he said global poverty would rise if protectionism took
root in the world's biggest economies.
Wars in Iraq and Afghanistan and
heightened geopolitical tensions worldwide after the
September 11 attacks on the US would "unquestionably" hold
back growth in the decades ahead, Mr Rogoff told reporters.
The report was highly critical of Europe's stagnating
economies, blaming governments for failing to embrace deep
structural reforms of their labour markets and welfare
"Reforms to improve the competitiveness of European labour
and product markets could yield significant dividends in
terms of regional output," the report said.
It also warned that an overrigid application of Europe's
fiscal rulebook could push the eurozone deeper into trouble.
Chancellor Gordon Brown echoed the IMF's criticisms of
the eurozone in an article in yesterday's Wall Street Journal,
arguing that the credibility of Europe was at stake.
Demanding wide-ranging change to
policies "that have held
back our continent for too long", Mr Brown added: "Reform
is not just desirable, it is an urgent necessity."
The chancellor said: "Having created
a single market in theory, we should make it work in
reality - and help it spread competition, cut prices,
increase consumer choice and deliver higher productivity."
The impact of the stalled trade talks in Mexico on the
fragile global recovery will dominate this weekend's annual
meeting of the IMF and the World Bank in Dubai.
Mervyn King, the governor of the
Bank of England, said yesterday: "The failure of the
talks in Cancun will cast something of a cloud over the
"That is not a happy background
in which to assess the durability of the recovery."
Misalignments between the world's biggest currencies are
also likely to feature on the agenda, with the US hoping
other countries will support its campaign to get China
to strengthen its currency, the yuan.
Following an upgrading of its growth prospects by the
fund, the US is expected to expand by 2.6% this year, the
fastest of the big seven economies.
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[ The Atlanta Journal-Constitution: 9/18/03 ]
GAO grim on deficit outlook
By MARILYN GEEWAX
The Atlanta Journal-Constitution
WASHINGTON -- The federal government's
budget is in far worse shape than most Americans realize,
and the fiscal hole is deepening, the head of Congress'
nonpartisan watchdog agency said Wednesday.
"Our projected budget deficits are not manageable without
significant changes" in taxes or spending, U.S. Comptroller
General David Walker said in a speech to the National Press
Club. "We cannot simply grow our way out of this problem."
Walker, who heads the General Accounting
Office, said he is a nonpartisan auditor whose job is
to "state the
facts and speak truth" about the nation's bookkeeping.
Current accounting systems fail to adequately reflect just
how severe the government's fiscal problems are, he said.
"The time has come for all responsible parties to recognize
reality," Walker said. "Our nation has a major long-term
fiscal challenge that is not going away."
Walker's assessment of the budget deficit is far grimmer
than the Bush administration's. White House officials have
stressed the importance of cutting taxes while calling
the deficit a manageable and relatively minor problem.
Walker vigorously disagreed.
"The bottom line is, there is little question that deficits
do matter, especially if they are large, structural and
recurring in nature," he said. "The days of surpluses are
gone, and our current and projected budget situation has
His comments came as the Treasury Department on Wednesday
reported the deficit had reached $400.5 billion for the
first 11 months of the 2003 budget year -- twice as much
as for the same period a year earlier.
Bush stance challenged
President Bush has blamed the rise of deficits during
his term on the economic recession, the wars in Afghanistan
and Iraq and higher spending on domestic security -- not
on the tax reductions he championed.
Walker, a former Reagan administration official, said
Bush's explanations don't add up.
"It's true that deficits are understandable and sometimes
necessary in times of recession and/or war," Walker said. "However,
while it may not seem like it to those who are out of work
or underemployed, we have not been in a recession for almost
Moreover, projected deficits "far exceed the costs associated
with Iraq, the global war against terrorism and any incremental
homeland security costs," Walker said. "It is time to admit
we are in a fiscal hole and to stop digging."
Contacted after Walker's speech,
White House spokeswoman Claire Buchan, said Bush "believes that returning the budget
to balance is an important priority." However, he must
focus right now on "economic security and waging the war
on terrorism," she said. "Those priorities are more important
at this point."
She said tax cuts were needed because "it's
important that we make every effort to grow the economy,
because a growing economy will help reduce the budget
Stephen Moore, president of the
powerful tax-cut advocacy group Club for Growth, said
Congress' focus should be on reducing spending. Economic
growth will boost government revenues and "tax cuts are an important part of getting
the economy going again," he said. At the same time, "we
need to do something about this stampeding growth in spending."
A daunting reversal
After four straight years of budget surpluses through
2001, the government returned to deficit spending in 2002.
The Congressional Budget Office said last month that the
federal deficit would hit $480 billion next year, far exceeding
the previous record of $290 billion in 1992.
The CBO also predicted annual budget shortfalls would
total nearly $1.4 trillion over the next decade, a stunning
reversal from the 10-year, $5.6 trillion surplus it forecast
Walker said even those daunting figures do not convey
the scope of the problem, because conventional government
accounting leaves out the impact of benefits promised to
Americans under veterans' health programs, Social Security,
Medicare and others.
"These additional amounts total tens of trillions of dollars," he
said. "They are likely to exceed $100,000 in additional
burden for every man, woman and child in America today,
and these amounts are growing every day."
Walker said Congress must make tough choices about both
taxes and spending.
On Capitol Hill and on the campaign trail, Democrats have
seized upon the rising deficit to criticize Bush for his
support for massive tax cuts in 2001 and 2003.
Members of both major political parties are expected to
focus on the deficit in the coming week as Congress considers
the president's request, made formally Wednesday, for an
additional $87 billion for military operations and rebuilding
in Iraq and Afghanistan.
Before becoming comptroller general in 1998, Walker was
a partner and managing director in the Atlanta office of
Arthur Andersen LLP. The accounting firm unraveled in 2002
in the wake of auditing scandals involving its clients
Enron Corp. and WorldCom.
Walker, in his speech, drew parallels between the federal
government's accounting problems and those that engulfed
a number of American companies in recent years.
"The recent accountability failures in the private sector
serve to reinforce the importance of proper accounting
and reporting practices," he said. "It is critically important
that such failures not be allowed to occur in the public
Walker was appointed comptroller general by President
Clinton and approved by the Republican-controlled Senate.
During the Reagan administration, he was an assistant
secretary of labor. He said currently he is neither a Democrat
nor a Republican.
The comptroller general serves a 15-year term and enjoys
an exceptional degree of independence.
Thomas Mann, a senior fellow at
the Brookings Institution, a left-leaning think tank,
said it is "perfectly appropriate" for
the comptroller to speak out about the deficit.
"Every serious policy person recognizes
we now face very serious medium- and long-term deficit
The Associated Press contributed
to this article.
this article at:
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