IMF Warns US budget deficit threatens World Economy

[question]

taken from : Yahoo News

MADRID (AFP) - The head of the International Monetary Fund (news - web sites) urged the United States to limit its gaping budget deficit, which he said threatens the world economy.

IMF (news - web sites) Managing Director Rodrigo Rato, in an interview with the Spanish radio network Cedena Ser, also predicted robust global economic growth next year and inisted that terrorism rather than the war in Iraq (news - web sites) posed the greater risk to Middle Eastern stability.

Correcting "the budgetary expansion in the United States is indispensable," Rato asserted.

"This imbalance is one of the risks for the world economy," he said.

"But it's not the only risk. The lack of growth in Europe is another."

The US Congressional Budget Office (news - web sites) reported earlier this month that the US government budget deficit would come to a record 422 billion dollars -- 3.6 percent of gross domestic product -- for the fiscal year to September 30.

Economists and analysts fear that a sustained US budget shortfall will drive up global interest rates, and thereby dampen growth, as the United States borrows huge amounts of money to finance the deficit.

Rato in the same interview praised US Federal Reserve (news - web sites) authorities for what he said was a "return to normal" in monetary policy.

"They're doing it very well and everyone knows it," he said, adding that global markets and emerging economies now realize that "US monetary expansion is coming to an end."

"That suggests that the US economy does not need any special stimulation."

The Federal Reserve, the US central bank, is trying to bring interest rates back to a more normal level after a period of unusually low rates that were designed to stimulate a sluggish economy.

Fed policymakers are expected to boost the Fed's key rate by a quarter-point on September 21.

European economies, Rato said, "are doing better than last year and have a fresh opportunity that they should not miss."

He stressed that Europe should take advantage of "a recovery in demand" to carry out reforms and reduce their public deficits, which under eurozone regulations should be kept below three percent of gross domestic product.

The IMF chief said in addition that the global economy was on the mend.

"All the countries of the world, almost without exception, are seeing growth that is more significant than last year and they will continue to grow next year, barring unforeseen circumstances.

"That doesn't mean there are no risks. But risks such as a rise in interest rates or high oil prices are better absorbed today than they were five or 10 years ago."

A member of the right-wing and pro-US former Spanish government, Rato insisted that it is not the war in Iraq that is threatening to destabilize the Middle East.

"The problem is terrorist fundamentalism ... From an economic point of view the problem is the existence of an organized terrorist force, one of whose principal objectives is the destabilization of regimes" in the region, he argued, maintaining that it is terrorism that is affecting the markets.

[Big Andy]

Originally Posted by question

"The problem is terrorist fundamentalism ... From an economic point of view the problem is the existence of an organized terrorist force, one of whose principal objectives is the destabilization of regimes" in the region, he argued, maintaining that it is terrorism that is affecting the markets.

Idealism often clashes with reality huh?