Greenspan warns on deficits
August 26, 2005
Outgoing Federal Reserve Chairman Alan Greenspan said in a speech to a
conference in Jackson, Wyoming on Friday that large budget deficits and growing trade protectionism pose risks to the health of the United States economy.
He said that these limit economic flexibility, which he characterized as an important characteristic for maintaining a healthy economy. He said that it is important that people not count on paper wealth created by rising stock prices and prices on homes which make consumers feel wealthier than they actually are but can evaporate quickly when bad economic times hit.
The Fed chairman said that stock and house prices must be increasingly taken into consideration when the Fed sets its interest-rate policies.
Mr. Greenspan also warned monetary policy makers that they should not focus exclusively on any one economic model, because those models are invariably a simplification of the real world, at odds with a complicated and intricate real world.