[cia-drugs] US current account deficit 'unsustainable' - NY Fed chief

[Vigilius Haufniensis]

http://news.ft.com/cms/s/12afef68-8c3c-11da-9efb-0000779e2340.html   US current account deficit ‘unsustainable’ – NY Fed chief By Christopher Swann in Washington Published: January 23 2006 18:29 | Last updated: January 23 2006 18:29 Timothy Geithner, president of the New York Federal Reserve, on Monday dismissed the view that the US current account deficit was sustainable, suggesting the risk of a sudden fall in the dollar would grow the longer the trade gap widened. In a speech at the Royal Institute of International Affairs in London, Mr Geith-ner said the problem could not necessarily be expected to solve itself. “Time does not necessarily help. The longer these gaps continue to build, the greater the ultimate adjustment required, and the greater the risks that accompany that process,” he said. “The plausible outcomes range from the gradual and benign to the more precipitous and damaging,” he said. “The size and duration of these [global] imbalances, perhaps the most visible of which is the US current account deficit, present challenges – and risks – for the world economy.” His warning came as Raghuram Rajan, chief economist at the International Monetary Fund, repeated his concern over the risk of a run on the dollar. “You cannot discount a run on the dollar. But you cannot fully quantify that risk at the moment,” he said at the same meeting. Mr Geithner has long focused in public speeches on the risks associated with the current account deficit. But he does not see a role for monetary policy in responding to the current account by raising interest rates to slow domestic demand growth and so the demand for imports. Rather, he believes the risks on the external side make it more important for the Fed to keep inflation under control, to avoid adding to the problems and to preserve the Fed’s flexibility in a crisis. Many economists have argued that the risks to the dollar from the bloated current account deficit are mitigated by support for the currency from Asian central banks, which wish to prevent an appreciation of China’s yuan undermining export growth. However, Mr Geithner said this should provide little comfort over the long term. “A prolonged continuation of the exchange rate ar-rangements that have given rise to the large increase in foreign official investments in US financial assets is unlikely to be consistent with the domestic requirements of those economies and for this reason many are already in the process of change,” he said. “Even if we could be confident that the world would be comfortable financing the US on these terms for some time, that fact alone does not mean that it is prudent for the US to continue borrowing on this scale.” Mr Geithner repeated his call for US politicians to reduce the budget deficit. The fact that the US is using much of the money borrowed from abroad to finance public spending, he said, increased the dangers. If it was being invested in the productive capacity of the US tradeable goods industries, this would at least help the US to pay back its foreign obligations. Complete archives at http://www.sitbot.net/ Please let us stay on topic and be civil. OM SPONSORED LINKS United state bankruptcy court western district of texas United state life insurance United state patent United state patent search United states patent office United state flag YAHOO! GROUPS LINKS  Visit your group "cia-drugs" on the web.    To unsubscribe from this group, send an email to:  [EMAIL PROTECTED]    Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service.