Monday, January 19, 2004

IMF Delivers Strong Warning On Growth of US Debt

I'm a solid capitalist, but I thought this an excellent piece from the Socialist web site.

By Nick Beams

The International Monetary Fund has sounded the alarm on the state of US finances, warning that the growth of external debt and the increase in the budget deficit are threatening global financial stability.

The warning came in a 60-page report entitled “US Fiscal Policies and Policies for Long-Run Stability” published last Wednesday. It said that large US budget deficits posed “significant risks” for the US and the rest of the world and that the rising US external debt, estimated to hit the equivalent of 40 percent of gross domestic product within the next few years—an “unprecedented level” for a large industrial country—could destabilise international financial markets.

The rising US demand for finance from the rest of the world—its balance of payments deficits currently absorb about three quarters of the world’s surpluses—coupled with a decline in the value of the dollar “could possibly lead to adverse consequences both domestically and abroad”. This could produce a collapse in international investor confidence in the US pushing up interest rates, leading to cutbacks in investment and a rapid slowdown in the world economy. ...Continued

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