But....let us spend 400Billion dollars in Iraq
Greenspan warns again about budget deficits
By Jeannine Aversa, Associated Press
WASHINGTON — Bloated budget deficits pose a danger to the nation's long-term economic health, Federal Reserve Chairman Alan Greenspan warned anew Thursday.
He said the danger is that deficits will keep rising as a percentage of total national output, and "unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse."
He issued a fresh call to policymakers to move swiftly to get the government's fiscal house in order.
"Under existing tax rates and reasonable assumptions about other spending ... projections make clear that the federal budget is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years," Greenspan said in prepared testimony to the Senate Budget Committee, .
Greenspan reiterated his call for some type of automatic government spending controls.
"In my judgment, the necessary choices will be especially difficult to implement without the restoration of a set of procedural restraints on the budget-making process," he said.
President Bush has pledged to cut the budget gap in half by 2009. The Congressional Budget Office has estimated the 2005 budget shortfall will be around $400 billion, including money for military operations in Iraq and Afghanistan.
The Fed chief has long urged renewing so-called pay-go provisions that compel lawmakers to show how they will pay for any spending initiatives or tax cuts.
Greenspan said the approaching surge of retirees adds urgency to the need to deal with budget constraints in light of uncertainty about the scale of looming medical and retirement costs.
"These uncertainties — especially our inability to identify the upper bound of future demands for medical care — counsel significant prudence in policy-making," Greenspan said, adding that policymakers "need to err on the side of prudence when considering new budget initiatives."
He repeated that the United States may already be in a position where it cannot meet commitments made to the baby boom generation and urged benefit cuts, if needed, be made as soon as possible.
"If existing promises need to be changed, those changes should be made sooner rather than later," he said.
Much of Greenspan's testimony echoed prior cautions he has made to Capitol Hill lawmakers and he stressed that steps to fix the problem are essential.
"As the latest projections from the (Bush) administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken," the Fed chief said.
He only briefly touched on the economy's current performance, saying "activity appears to be expanding at a reasonably good pace," an assessment he has made repeatedly this year.
His comments come as some private economists are concerned about the extent to which high energy prices will crimp economic activity.