Newspaper article THE JOURNAL RECORD

Volcker Warns of `Strain, Imbalance, Danger' in Economy / Federal Reserve Chairman Urges Action to Slash Deficit

Newspaper article THE JOURNAL RECORD

Volcker Warns of `Strain, Imbalance, Danger' in Economy / Federal Reserve Chairman Urges Action to Slash Deficit

Article excerpt

WASHINGTON (AP) - Federal Reserve Chairman Paul Volcker on Wednesday warned of ""strain, imbalance and danger'' in the U.S. economy and once again urged Congress to do something about soaring federal budget deficits.

The chairman of the nation's central bank said the United States had enjoyed a relatively strong economic recovery for 2 1/2 years with low inflation, but he said budget and foreign trade deficits were posing a growing threat.

""The inherent strength of our economy and the momentum of our expansion have carried us a long way,'' he said in testimony before a House Banking subcommittee. ""But we also do not need to look far to see signs of strain, imbalance and danger.''

Volcker's comments came a day after the central bank revealed that it had boosted one of its key money supply targets for the rest of 1985, a move interpreted by many as giving the Fed more leeway to continue an easy credit policy designed to foster a rebound in economic growth.

However, Volcker told the House panel that the central bank was reaching the limits of what it could do through monetary policy to keep the economy thriving.

""We are dealing with a situation marked by gross imbalances that can neither be sustained indefinitely nor dealt with successfully by monetary policy alone,'' Volcker said.

Volcker and many other economists believe that huge federal budget deficits have driven interest rates higher than they otherwise would have been, attracting foreign investment which has kept the U.S. dollar at high levels. The strong dollar has in turn given the country record trade deficits by making imports cheaper and U.S. exports tougher to sell overseas.

The trade and budget deficits are currently being handled by ""piling up debts abroad in amounts unparalleled in our history,'' Volcker warned.

""When we are living on this much borrowed money, we are also living on borrowed time,'' Volcker said.

Responding to a question, Volcker repeated an assertion he made earlier this year that Congress needs to cut the $200 billion deficit by $50 billion in 1986 to have a favorable impact on financial markets. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.