The US economy is growing at a "reasonably good pace," Federal Reserve chairman Alan Greenspan said yesterday, but he warned that dangerous budget deficits must be fixed, preferably through spending cuts.
"When you begin to do the arithmetic of what the rising debt level implied by the deficits tells you, and add interest costs to that ever-rising debt at ever-higher interest rates, the system becomes fiscally destabilising," Mr Greenspan told the House of Representatives Budget Committee.
"Addressing the government's own imbalances will require scrutiny of both spending and taxes. However, tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base," he said.
Greenspan has long favoured spending cuts over tax hikes.
In his testimony, the influential Fed chief said the combination of America's ageing population and soaring health care costs poses the biggest budget risk.
Greenspan again threw his weight behind the notion of restructuring the social security retirement system to include private investment accounts - an idea that US president George Bush is pushing in his speeches around the United States.
