US BUDGET ENDANGERS GLOBAL ECONOMY - International Monetary Fund Report


Editor's Note: The federal government has lurched into deficit spending like a drunken sailor. It should be the key issue of government and voters in this political year. BW


WASHINGTON (Dow Jones)--Economists at the International Monetary Fund on Wednesday expressed alarm at growing U.S. budget deficits, saying continued deficits could hurt the global economy by roiling currency markets and driving up interest rates.

In a report on U.S. budget outlook, IMF researchers described the state of government finances as "perilous" in the long run and urged Congress and the White House to take steps to quickly rein in the deficits.

Although federal tax cuts and spending increases since 2001 bolstered the global economy in the short run, the report said "large U.S. fiscal deficits also pose significant risks for the rest of the world."

A key risk is that the recent slide of the U.S. dollar against other major currencies could become "disorderly," the researchers said.

The dollar has declined sharply since early 2002 against both the European common currency and the Japanese yen, complicating the task of European and Japanese monetary policymakers, said Charles Collyns, who heads the IMF team that monitors the U.S. economy.

The White House has said it expects the budget deficit to expand to a record $ 475 billion in fiscal 2004, exceeding 4% of the gross domestic product.

U.S. Treasury Secretary John Snow on Wednesday described that level as "entirely manageable," and said the Bush administration expects the deficit to shrink to 2% of GDP within five years.

But the IMF researchers said that won't be enough to address the government's long-term fiscal problems - including financing the Social Security and Medicare programs over the next 75 years. In their report, they said the government faces a $47 trillion shortfall in its ability to pay for those and all other long-term obligations. Closing that gap would require "an immediate and permanent" federal tax increase of 60% or a 50% cut in Social Security and Medicare benefits.