|Bush is endangering the US and the world with deficit||MJ|
Jan 8, 2004 9:35 AM
|but it doesn't matter because there's been a "resurgent US economy" - why is no one mentioning the recent upward trend is in exchange for the largest deficit ever and can not be sustained - ultimately somebody's gonna pay... it's only a matter of how
January 8, 2004
I.M.F. Says Rise in U.S. Debts Is Threat to World's Economy
By ELIZABETH BECKER
and EDMUND L. ANDREWS
ASHINGTON, Jan. 7 With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report released Wednesday by the International Monetary Fund.
Prepared by a team of I.M.F. economists, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration's tax cuts and warning that large budget deficits pose "significant risks" not just for the United States but for the rest of the world.
The report warns that the United States' net financial obligations to the rest of the world could be equal to 40 percent of its total economy within a few years "an unprecedented level of external debt for a large industrial country," according to the fund, that could play havoc with the value of the dollar and international exchange rates.
The danger, according to the report, is that the United States' voracious appetite for borrowing could push up global interest rates and thus slow global investment and economic growth.
"Higher borrowing costs abroad would mean that the adverse effects of U.S. fiscal deficits would spill over into global investment and output," the report said.
White House officials dismissed the report as alarmist, saying that President Bush has already vowed to reduce the budget deficit by half over the next five years. The deficit reached $374 billion last year, a record in dollar terms but not as a share of the total economy, and it is expected to exceed $400 billion this year.
But many international economists said they were pleased that the report raised the issue.
"The I.M.F. is right," said C. Fred Bergsten, director of the Institute for International Economics in Washington. "If those twin deficits of the federal budget and the trade deficit continue to grow you are increasing the risk of a day of reckoning when things can get pretty nasty."
Administration officials have made it clear they are not alarmed about the United States' burgeoning external debt or the declining value of the dollar, which has lost more than one-quarter of its value against the euro in the last 18 months and which hit new lows earlier this week.
"Without those tax cuts I do not believe the downturn would have been one of the shortest and shallowest in U.S. history," said John B. Taylor, under secretary of the Treasury for international affairs.
Though the International Monetary Fund has criticized the United States on its budget and trade deficits repeatedly in the last few years, this report was unusually lengthy and pointed. And the I.M.F. went to lengths to publicize the report and seemed intent on getting American attention.
"I think it's encouraging that these are issues that are now at play in the presidential campaign that's just now getting under way," said Charles Collyns, deputy director of the I.M.F.'s Western Hemisphere department. "We're trying to contribute to persuade the climate of public opinion that this is an important issue that has to be dealt with, and political capital will need to be expended."
The I.M.F. has often been accused of being an adjunct of the United States, its largest shareholder.
But in the report, fund economists warned that the long-term fiscal outlook was far grimmer, predicting that underfunding for Social Security and Medicare will lead to shortages as high
|And what do you think of the IMF's opinion?||TJeanloz|
Jan 8, 2004 9:38 AM
|Last I read, your opinion of the IMF was not stellar. Has that changed?|
|they can't get everything wrong :-)||MJ|
Jan 8, 2004 9:47 AM
|anyways - it seems pretty self-evident - is it not?
and as I recall you thought the IMF were stellar - has that changed?
|they can't get everything wrong :-)||TJeanloz|
Jan 8, 2004 10:41 AM
|I think the IMF is usually right in their analysis. In this case, I think they are technically correct in their analysis, some of the underpinnings of which are flawed. It's a little bit like driving towards a 90 degree turn that boarders a cliff, and having your backseat driver say: "Oh my God, we're heading for a cliff!!" Well, yes, your analysis is correct, you are, in fact, heading for a cliff. Whether or not you will make the turn (and not fly off the cliff) is not entirely clear. However, a better analogy in this case is the same one, only you're driving in fog - nobody's really sure where you're going, but everybody's a little bit worried about it.
I really think it was unprofessional for the IMF to be so alarmist. There really isn't a problem. There COULD be a problem in the future, but right now, it's not really cause for concern. The 2004 deficit (The Largest in History!!!) will be 2.7% of GDP. We all agree that % of GDP is the appropriate measure, right? The raw $ figure of the deficit isn't that interesting, except for those who like to call it the largest ever. In 1994, the deficit was 2.8% of GDP. The EU has a target level of 3.0% of GDP for member nations - which France and Germany have routinely exceeded. In the context of other nations, a 2.7% deficit isn't bad.
In the context of US history, a 2.7% deficit isn't that bad either. GHWB had an average of 4.3%; as did Reagan. At the peak of WWII, the deficit was more than 30% of GDP.
The IMF's point is well taken - the current rate of Government borrowing, coupled with slow receipts, is not sustainable. Duh. I do think they were out of line for sounding the alarm on this one. The Bush team seems, from an economic standpoint, to have managed this recession almost perfectly. Hopefully, they'll do similarly well with the recovery.
|GREAT Analogy TJ!||CARBON110|
Jan 8, 2004 11:50 AM
|That had me in stitches buddy! Good commentary from both of you by the way. I'm glad the important stuff from the NON-CYCLING board has leaked into the General Forum ~:)|
|well put; you're a useful guy to have around nm||DougSloan|
Jan 9, 2004 2:09 PM
|The whole world?! Wow!! But fear not ...||HouseMoney|
Jan 8, 2004 1:50 PM
|... according to Howard Dean, he'll have the deficit licked by the 5th or 6th year of his presidency!|
|lick Bush in '04 nm||thegarzacomplex|
Jan 9, 2004 12:35 PM