IMF Researchers: US Budget Gaps Endanger Global Economy (Euro trash has a cow)

Dow Jones Newswire via Yahoo! News ^ | 1/7/2004 | Joseph Rebello

[playball0]

IMF Researchers: US Budget Gaps Endanger Global Economy

By Joseph Rebello, Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--Economists at the International Monetary Fund (news - web sites) on Wednesday expressed alarm at growing U.S. budget deficits, saying continued deficits could hurt the global economy by roiling currency markets and driving up interest rates.

In a report on U.S. budget outlook, IMF researchers described the state of government finances as "perilous" in the long run and urged Congress and the White House to take steps to quickly rein in the deficits. Although federal tax cuts and spending increases since 2001 bolstered the global economy in the short run, the report said "large U.S. fiscal deficits also pose significant risks for the rest of the world."

A key risk is that the recent slide of the U.S. dollar against other major currencies could become "disorderly," the researchers said. The dollar has declined sharply since early 2002 against both the European common currency and the Japanese yen, complicating the task of European and Japanese monetary policymakers, said Charles Collyns, who heads the IMF team that monitors the U.S. economy.

"We feel there is a substantial risk that the foreign investors' appetite for U.S. assets, and in particular U.S. government assets, will over time diminish," Collyns said in a news conference. "We think to some degree over the past year this has occurred, and this is one of the reasons why there has been weakness in the U.S. dollar." So far, he said, the decline hasn't jeopardized the economic recoveries in Europe and Japan, but the danger to the global economy could grow if the U.S. budget deficits aren't shrunk.

The White House has said it expects the budget deficit to expand to a record $ 475 billion in fiscal 2004, exceeding 4% of the gross domestic product. U.S. Treasury Secretary John Snow on Wednesday described that level as "entirely manageable," and said the Bush administration expects the deficit to shrink to 2% of GDP (news - web sites) within five years.

But the IMF researchers said that won't be enough to address the government's long-term fiscal problems - including financing the Social Security (news - web sites) and Medicare programs over the next 75 years. In their report, they said the government faces a $47 trillion shortfall in its ability to pay for those and all other long-term obligations. Closing that gap would require "an immediate and permanent" federal tax increase of 60% or a 50% cut in Social Security and Medicare benefits.

The dollar's recent decline, the researchers said, suggests that foreign investors are starting to worry about the U.S. government's ability to resolve its long-term fiscal problems. "The United States is on course to increase its net external liabilities to around 40% of GDP within the next few years - an unprecedented level of external debt for a large industrial country," they said in the report. "This trend is likely to continue to put pressure on the U.S. dollar."

The IMF report said the ratio of U.S. public debt to GDP is expected to increase by 15 percentage points over the next decade. If that occurred, global interest rates, adjusted for inflation, would rise by an average of 0.5 to 1 percentage point. "Higher borrowing costs abroad would mean that adverse effects of U.S. fiscal deficits would spill over into global investment and output," the report said.

Congress and the White House can avert those dangers by acting immediately to balance the budgets, the researchers estimated. Allowing the recent tax cuts to expire by 2013 would reduce the budget shortfall by nearly half. The researchers also said Congress should consider a tax on energy consumption, arguing that it would "help meet the administration's environmental objectives while also providing substantial support for fiscal consolidation." Such tax increases, they calculated, would have a minimal effect on U.S. economic growth.

-By Joseph Rebello, Dow Jones Newswires; 202-862-9279; joseph.rebello@dowjones.com

[playball0]

IMF is a global organization that has been taken over by the euro-socialist weenies. Doing good has replaced rational thought. Their research is suspect.

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[waterstraat]

We need to balance the federal budget, AND!! our balance of trade, now. There will be very serious and very bad consequences if we dont. This is not a play game.

[lucckyu]

I don't give a cra* about the world economy.

[the Real fifi]

Great idea! I propose for a start we cut off funding to the IMF for a start---any operation which keeps feeding the Argentinian kleptocrats deserves to go out of businss. Trust me the World Bank and IMF employes the dumbest, most overcompensated people you can imagine.

[cpst12]

>>Their research is suspect.

Oh good, I thought for a moment we were spending way to much money that we don't have. Glad to hear there are no defecits to worry about.

[optik_b]

"I don't give a cra* about the world economy."

Who do you think finances our gigantic ever increasing deficit and funds the wars being fought on a credit card?

[optik_b]

"Great idea! I propose for a start we cut off funding to the IMF for a start---any operation which keeps feeding the Argentinian kleptocrats deserves to go out of businss. Trust me the World Bank and IMF employes the dumbest, most overcompensated people you can imagine."

I agree, the World Bank is like an organized crime organization, except they are legally excempt from paying taxes.

[CasearianDaoist]

They just want us to tax at EU rates so they can be "competitive" with us. Globalism will not work for socialist countries unless all tax rates are "harmonized" and all labor rates are leveled. We will hear more of this. The Kyoto Treaty did not work so now they will try something else. Getting the Fed to rasie rates won not hurt much either from their perspective

Note that they will not consider two notions in the model: 1) cutting social programs, spending and regulations, and 2)and actual real increase in GDP over the same period.

Lastly, for the IMF to be giving anyone advice is ludicrous. All of these globalist institutions - the UN, IMF,WTO etc.- are engaged in a hidden war with the US and have been shamelessly politicized by the Socialists. If we do not pull out of them it is just a matter of time before they win.

You wait, Dean and Co. will start touting this "finding" in their campaigns. I will give them an issue too - just watch. Was there ever a time when world leaders were more corrupt and so out in the open about it? What contempt they have for our intelligence.

[ancient_geezer]

We need to balance the federal budget, AND!! our balance of trade, now.

When the dollar weakens against foreign currencies, our goods become cheaper in foreign markets increasing our exports.

At the same time, foreign goods increase in price in our markets, tending to decrease imports.

As our foreign sales increase, and our national economy increases so do tax revenues to the treasury decreasing deficits building into surpluses.

In short we are in the cat-bird's seat and that's why EUO weenies are alarmed:

Economists at the International Monetary Fund (news - web sites) on Wednesday expressed alarm at growing U.S. budget deficits, saying continued deficits could hurt the global economy

It operates against Euorpean interests and in the United States favor. Enjoy!!

[RightlySo]

"The researchers also said Congress should consider a tax on energy consumption, arguing that it would "help meet the administration's environmental objectives while also providing substantial support for fiscal consolidation." Such tax increases, they calculated, would have a minimal effect on U.S. economic growth."

UTTER GARBAGE. This is clear testimony to the bias. Tax and tax some more. We have a SPENDING PROBLEM, not an income problem. If these fools had their way, they'd tax at 100% and give all the revenue to the UN. Of course, no one would want to work, but then again, if they had their way, they'd have the Euroweenies immigrate to be our slavemasters.

Who is finally going to take a stand and cause some pain to FIX the spending problem? Congress has been kiting our paychecks for about a century now. Good Lord, I'm getting fed up to the gills with this garbage.

[Jackson Brown]

Their concerned because the advantage falls to the US over the European economies...at least for now.

Unemployment is 10% or so in the EU's major economies and getting worse.

The EU also faces HUGE internal deficits with their cradle to grave socialism, an aging population, a rapidly growing 3rd world Islamist underclass, and tepid (recession prone) growth.

As it is, the EU middle class (middle 20%) lives at a standard of living about equal to that of the bottom economic quintile (lowest 20%) in the US.

There has been an economic war between the US and the EU...declaration of that war was the purpose of the establishment EU in the first place.

The problem (for them) is the US has taken up the gauntlet and the Euro-scum are losing the economic war they started.

[waterstraat]

When the dollar weakens against foreign currencies, our goods become cheaper in foreign markets increasing our exports.

Not when you close your factories and move your manufacturing to asia. We will not export more Maytags which are now made in asia, we will not export more Lifesavers, we will not export more Stanley tools, we will not export more Cross pens, etc.etc. etc. You cant export what you dont make.

[Mudcat]

It's pretty bad when the Int'l *MAFIA* Fund goons have to tell us that we have fiscal problems... and we do!... but between the choice of cutting spending and increasing taxes, I say break out the ax!

[The Raven]

It it just me or does anybody else smell a rat (the US libs pulling the strings on the EU for US political gains)?

They must all get on the phone and chat about how to get rid of Bush.

[Hardastarboard]

And so the IMF begins to make the case for tapping our wallets in the form of tax increases. How convenient for the Democrats.

[nwrep]

They just want us to tax at EU rates so they can be "competitive" with us.

You are missing the point. They just want GW out of the WH. I just talked to someone who returned from Europe. The sheer hysterical paranoia and hatred they have for GW personally is astounding.

[ruppertdog]

They aren't telling us anything we don't already know-
our social spending programs are unsustainable, especially until the baby boomers all die.

The problem is not the tax releif, it is the absurd spending that is going on. Deficit is the only constraint to this, i.e. the government will always spend whatever it can. Deficits are the only way to slow or stop this spending. I have read somewhere that the growth in spending has actually slowed somewhat recently.

The IMF feels our politicians may not be able to control themselves and will eventually wreck the dollar spending away in a few years. I see this as a potential risk to our country and therefore the rest of the world in coming years. It will be difficult to accomplish, but if anyone can do it it will be our congress.

[dr_who_2]

First US gov cost-cutting measure: de-fund the IMF.

[HostileTerritory]

Isn't the IMF based in Washington?