MercoPress. South Atlantic News Agency

Greenspan warns about growing US deficits

Federal Reserve chairman Alan Greenspan warned Congress members Thursday that the United States economy could “stagnate or worse” unless the trend of rising US budget deficits is not reversed.

In a testimony to the Senate budged Committee Mr. Greenspan said that the federal was on an unsustainable path in which large deficits prompted rising interest rates and ever growing interest payments, and most important "deficits as a percentage of GDP in these simulations rise without limit. Unless that trend is reversed at some point these deficits would cause the economy to stagnate or worse".

Mr. Greenspan suggested that a procedural framework aimed at deficit reduction, such as that outlined in the Budget Enforcement Act 1990, "would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process".

Further on he said the reinstatement of such s framework would be even more meaningful if it were coupled with the adoption of a set of provisions for dealing with unanticipated budgetary outcomes over time.

Mr. Greenspan also mentioned specifically the rising health care costs and their intense pressure on the federal budget.

Federal outlays for social security, Medicare and Medicaid totalled 8% of GDP in fiscal 2004 and long term projections indicate that the share will rise to approximately 13% by 2030.

"So long as health care costs continue to grow faster than the economy as a whole, the additional resources needed for these programs will exert intense pressure on the federal budget", emphasized Mr. Greenspan.