MercoPress. South Atlantic News Agency

Greenspan cautions

US Federal Reserve Chairman Alan Greenspan warned that uncertainties over a possible war against Iraq are weakening US economic growth, creating “formidable barriers to new investment and thus to the resumption of a vigorous expansion of overall economic activity”.

"While household spending has been reasonably vigorous, we have yet to see convincing signs of a rebound in business outlays", said Mr. Greenspan underlining that "we do not know what the underlying strength of the economy is", adding that war uncertainties were masking "persistent strains and imbalances".

Mr. Greenspan's address to the US Senate Banking Committee also included a serious appeal to restore fiscal discipline saying that if budget commitment mechanisms are not restored, it may result in growing political inspired budget deficits.

Under questioning by Senators Mr. Greenspan supported the removal of tax on share dividends, a key proposal in a controversial 695 billion tax reform package sent by President George Bush to Congress.

The move would tackle a major factor restraining flexibility in the US economy, said Mr. Greenspan who nevertheless cautioned against worsening the US budget deficit in the face of ageing population, with major problems to social security and health care services in 2010/12.

"Barring an economic miracle, the ageing of population will end this state of relative budget tranquillity in about a decade's time".

Alan Ruskin from New York based 4Cast said the "tone was more cautious than optimistic", with two basic messages, "if political risks recede soon, we will have a better perception of the US economy health, and the other is that if the economy remains weak after Iraq, other measures regarding monetary policy could be considered".

However the Federal Reserve forecast for the US economy is that it will expand by 3,25% to 3,5% this year compared with 2,8% in 2002.