I Think These Guys Would Know An Economic Recovery Better Than Anyone - And They Don't See One!
WASHINGTON - Uncontrolled U.S. budget deficits would pose a serious threat to global prosperity in coming years as rising interest rates depress economic growth in the United States and around the world, the International Monetary Fund warned Wednesday.
The IMF released a new analysis that predicted if nothing is done to get control of the soaring U.S. deficits, it would shave global economic output by 4.2 percent by 2020 and reduce U.S. economic growth by 3.7 percent during the same period.
IMF economists said much of the adverse impact would occur because of increased borrowing demands in the United States to finance the budget deficit. This would drive up U.S. interest rates and interest rates in other countries as the global supply of available capital is reduced, they said.
"The rest of the world is affected seriously by the U.S. fiscal deficit," IMF chief economist Raghuram Rajan told reporters in a briefing on the new report.
Why do they hate George Bush's economic recovery so?
President Bush submitted a budget to Congress this year which projects that he will be able to cut the deficit in half over the next five years, reducing it to a shortfall of $237 billion in 2009. The IMF said that if Bush is able to accomplish that such a reduction in the budget deficit, it would significantly lower, but not eliminate the adverse effects from the deficit on the U.S. and global economies. It saw a long-run impact from such a budget reduction as reducing global economic output by 2.55 percent, compared to a reduction of 4.2 percent under the worst-case scenario in which the deficit remains at the current record levels.
The IMF analysis of the economic impact of the U.S. budget deficits represented the latest in a series of reports in which the 184-nation international lending agency has urged stronger measures to get control of the deficit. The IMF said it was important to make as much progress as possible to get the deficit under control now, before rising interest rates greatly increase the cost of servicing government debt. It also warned that the huge U.S. budget deficit could have other adverse impacts on the U.S. economy such as helping increase the country's foreign trade deficit and putting downward pressure on the U.S. dollar.
The IMF analysis of the U.S. budget deficit was contained in the analytical chapters of its World Economic Outlook, which will be released in full next week in advance of the spring meetings of the IMF and the World Bank. The United States is likely to face criticism at those meetings from other countries about the need to reduce its budget deficit and trade deficit in order to lower risks to the global economy.
If Bush thinks (sic) that he's got a war on his hands in Iraq, he's really in for a fight at these meetings, for hell hath no fury like an entire room full of bankers losing monetary value.