U.S. Deficit = World Debate
The soaring U.S. budget deficit is not a threat to the global economy, Treasury Secretary John Snow said as finance ministers and central bankers from the major industrialized nations gathered for weekend meetings.
Sounding an optimistic note before he and Federal Reserve Chairman Alan Greenspan hosted a meeting of the Group of Seven major industrial nations, Snow said Thursday that the U.S. economy is in far better shape than it was last spring. Analysts then were worried that anemic growth would plunge the United States into another recession.
"We're on very solid footing, our upward trend is strong," Snow said, listing a number of upbeat economic signs, from growth in the gross domestic product to rising exports and the creation of 300,000 payroll jobs in March, the biggest one-month gain in four years.
"I anticipate that this economy will be creating a lot more jobs in the coming months," Snow said in a speech to the Bond Market Association in New York.
Sen. John Kerry, the presumptive Democratic presidential nominee, and other Democrats are trying to make an issue of job losses that occurred since President Bush took office, especially the 3 million manufacturing jobs that have disappeared. Kerry also said Mr. Bush's tax cuts favor the wealthy and have saddled the government with record budget deficits.
Snow, however, said the tax cuts have stimulated the U.S. economy. He also said the Bush administration has a plan to cut this year's projected $521 billion budget deficit in half over the next five years.
"The deficit is too large, but it is understandable and it is manageable," he said.
The International Monetary Fund has criticized U.S. budget policies and wants to see quicker action to deal with the deficit so that interest rates don't rise too rapidly and put a brake on the global economic growth.
The IMF also is worried about America's rising current account trade deficit, the broadest measure of foreign trade measure of foreign trade, which hit a record $541.8 billion last year.
The concern is that if overseas investors lose confidence in loaning the United States money, the dollar's value could sink, investors would flee, stocks would plunge and interest rates would soar.
Soaring rates would choke growth in the United States, which in turn fuels economies around the world.
The trade deficit shrunk in February to $42.1 billion, partly because the cheaper dollar made U.S. exports more attractive to foreign customers. But it remains at a historically high level.
Finance officials from the G-7 nations the United States, Britain, Canada, France, Germany, Japan and Italy — begin their discussions Friday night and continue Saturday morning. Those talks are being held in advance of the spring meetings of the IMF and its sister institution, the World Bank, which are scheduled for Saturday and Sunday.
As usual, protest groups demonstrated against the two lending agencies, using the theme of "Unhappy Birthday" in recognition of the both organizations' 60th anniversary.
"For us, the bottom line has to be how are the poorest people, how are the most vulnerable people in the world faring in the contest of policies that these two institutions are promoting," said Marie Dennis, director of the Maryknoll Office for Global Concerns.
Protesters accuse the IMF and World Bank of forcing developing countries to open their economies to foreign trade and investment too rapidly, with little concern for working conditions.
World Bank President James Wolfensohn said he was concerned that the global war on terrorism was diverting attention from the pressing need to eliminate global poverty, often seen as a breeding ground for terrorists.
The World Bank did have some good news to report on the war on global poverty. Wolfensohn said the bank's first annual review of the progress being made in cutting poverty in half by 2015 showed that the goal can be reached.
He said this was primarily because of strong economic growth in China and India. However, he said the World Bank's review showed that many other regions of the world, including Africa, were falling behind.
The report said rich countries need to deliver on the promises they made at a conference in Monterrey, Mexico, to ensure that all of the Millennium Development Goals, which cover such areas as education, health and clean water, can be achieved.