Troubling U.S. debt
 
NYT
Tuesday, January 13, 2004
The International Monetary Fund has long been accused of failing to sound the alarm before countries with reckless fiscal policies implode. So it was nice to see staff members of the Fund's Western Hemisphere department hold a press conference last week to publicize one nation's worrisome trends, which threaten foreign investors and the global economy.
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Who was in for the scolding? Haiti? Argentina? Mexico? Not exactly. It's the United States the Fund is worried about. An economic slowdown and President George W. Bush's huge tax cuts conspired to swing the U.S. federal budget from a surplus of 2.5 percent of gross domestic product in 2000 to a deficit of about 4 percent in 2003. Add the states' own budget shortfalls and the country's trade deficit, the IMF report notes, and the United States faces an "unprecedented level of external debt for a large industrial country."
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Robert Rubin, the former Treasury secretary, and Donald Kohn, a Federal Reserve governor, have also railed against the deficit in recent days. But there is something humbling about hearing it from an international organization charged with monitoring economies on the brink. In most countries, the IMF is often viewed as a U.S. agent, preaching the inconvenient gospel of fiscal discipline and austerity. There is a certain poignancy now in having the IMF preach the so-called "Washington consensus" to Washington.
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The IMF forcefully argues that the United States will need to adjust taxes and spending to bring its finances under control; the recovery alone won't do it. The Fund's report warns that U.S. profligacy and its voracious appetite for credit will drive up interest rates around the world, threatening the global economic recovery and U.S. productivity growth.
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Foreign investors are already selling the dollar in reaction to Washington's fiscal recklessness, but the Fund warns that this selling could accelerate and create a currency crisis. It also notes that present trends pose dangers for the future of Medicare and Social Security.
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Most damning of all, the report attacks the "complicated and nontransparent manner" in which the Bush administration's $1.7 trillion in tax cuts were enacted, designed as they were to mask their true budgetary impact. The IMF's frustration is understandable. The United States has provided other nations with a terrible model of obfuscatory governance. Congress and the Bush administration enacted "phased in" tax cuts that were supposed to be retired in a decade, accelerated their phasing in and then, after they were priced under the assumption that they would fade away, pledged to make them permanent.
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No wonder the rest of the world is appalled.

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