IMF Still Miffed With Bush Aministration Their Suggestion: Try Budgeting You Neophytes!!!!

IMF continues warning on US deficit

WASHINGTON, Jan. 7 (UPI) -- The U.S. budget deficit is burgeoning from rising defense and security spending, even as tax cuts are lowering government revenue, amid increasing demands on the budget from the retiring baby boom generation, the International Monetary Fund cautioned once again Wednesday.

But the IMF's warnings and its prescriptions for dealing with the budgetary as well as trade deficits are unlikely to have much impact on U.S. policymakers, if any, particularly in a presidential election year.

Since the Bush administration took over in 2001, the federal budget balance has deteriorated rapidly, and the government deficit is expected to exceed 4 percent of gross domestic product for the current fiscal year.

"And that deficit is likely to be sustained...which raises longer-term issues," not just for the U.S. economy, but for overall global economic prospects, said Charles Collyns, deputy director of the IMF's western hemisphere department in a phone conference with reporters. The group released a study Wednesday on U.S. fiscal policies and priorities for long-run stability, which Collyns said was based on discussions with U.S. authorities over the summer.

The IMF warned that the large fiscal deficits will likely continue over the next decade as the administration keeps on cutting taxes on the one hand, while increasing defense and social spending on the other. That, in turn, could lead to a rise in interest rates, even though the international agency did not specify by just how much monetary policy could be tightened. It also noted that higher interest rates would crowd out private sector investments and ultimately hamper business and productivity growth as well as consumer spending.

In the near-term, of course, prospects for the U.S. economy and indeed the world economy, appear to be looking much better than they did a year ago. With U.S. asset prices on the rise once again and GDP outpacing analysts' expectations in the third quarter, a brighter outlook for the U.S. economy has been key to improving prospects for both Japan and Europe.

Still, the IMF said that in the longer-term, the ballooning budget deficit and net foreign liability position in the United States will be the biggest dark spot in the global economy moving forward, and could "eventually" raise real interest rates in industrialized nations by 0.50 to 1.00 percentage points.

"The United States is on course to increase its net external liabilities to around 40 percent of GDP within the next few years...this trend is likely to put pressure on the U.S. dollar, particularly because the current account deficit increasingly reflects low savings rather than high investment," the IMF stated.Much more at link

Read the entire story. It details much of what we here at pure bs have been saying about U.S. debt in the longer term. The IMF is notorious for underestimating the fallout of events. Essentially, the IMF can only make suggestions about U.S. policy because the U.S is the largest single donor to the IMF, and is free to do what is pleases.

I am not an economist, but I do have the ear of an economist friend that works in Zurich. She is really at a loss to come up with a plan for the U.S. to balance its budget in the foreseeable future without a repeal of Bush's tax cuts, and a more robust growth engine. She sees a very dark future for middle America in the coming decades. She's also a real looker :)

Of course the issue with 'the dismal science' is as has oft been said, "put ten economists in a room and you'll end up with eleven interpretations."