Greenspan reassures on burgeoning deficit
Saturday 05 February 2005
Alan Greenspan, the chairman of the Federal Reserve, delivered a veiled warning yesterday that a further decline in the value of the dollar could begin to drive up US inflation.
However, the world's most influential central banker re-iterated his view that the American economy had sufficient flexibility to cope with the twin threats posed by a weak currency and its enormous trade deficit.
Mr Greenspan also suggested that pressure on the US to borrow from overseas in order to fund the current account deficit could ease if the Bush administration heeded the growing chorus of calls for fiscal restraint.
Speaking at the Advancing Enterprise conference in London, the Fed chairman said: "We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins." This, he said, would result in an increase in import prices although it would also lower the quantity of imports, leaving the overall value of US imports uncertain.
Bob Rubin, the former US Treasury Secretary under President Clinton, later said he feared that America's terrible twins - the budget deficit and trade deficit - would get worse, not better. He warned that this could have serious effects on bond markets and the US currency. He said "tinkering around the edges" would not deal with one of the country's fundamental problems: tax revenues were now equal to just 16 per cent of total output - the lowest proportion since 1960.
The final communiqué from the G7 meeting today will be closed watched by the markets for what it says about exchange rates. Mervyn King, Governor of the Bank of England, told the conference that the G7 needed to bring countries such as China and India into its discussions more if it was to tackle global trade imbalances brought about by divergent exchange rates.
- 1 Cara Delevigne addresses awkward interview on Good Day Sacramento
- 2 Model's video shoot on the beach interrupted by sudden landing of a group of illegal migrants
- 3 The difference between a psychopath and a sociopath
- 4 MH370: Boeing 777 wing that could match missing plane found on the French island of Reunion
- 5 Living in Spain and commuting to London 'cheaper than actually working in London'
Kate Winslet thanked 'particularly horrible' girl who bullied her at school after Titanic success
Israel accused of killing 75 children during day of 'carnage' and war crimes in Gaza war
Australia to impose 24-hour curfew on all cats to protect endangered species
Walter Palmer: Cecil the lion killer revealed to be American dentist
MH370: Boeing 777 wing that could match missing plane found on the French island of Reunion
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
I am the Jeremy Corbyn supporter that many will tell you doesn't exist
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
Calais crisis: For desperate migrants it is 'England or death' as they brave dogs, riot police and speeding trains
iJobs Money & Business
£800 per day: Ashdown Group: A highly successful, global financial services co...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250...
£45 - £55k DOE: Guru Careers: A Financial Controller is required to join a suc...
£12500 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...