MM Money

Greenspan Says Trade Gap May Narrow

Excerpt: Alan Greenspan, the chairman of the Federal Reserve, said on Friday that America's record trade deficit might be poised to stabilize and even fall because of market pressures and belt-tightening by the Bush administration.

Alan Greenspan, the chairman of the Federal Reserve, said on Friday that America's record trade deficit might be poised to stabilize and even fall because of market pressures and belt-tightening by the Bush administration.

Mr. Greenspan was speaking at a gathering coinciding with a scheduled meeting of the finance ministers and central bank governors from the Group of 7, the leading industrialized nations. His remarks inspired a strengthening of the dollar, which had fallen because of a weak jobs report in the United States.

Although Mr. Greenspan acknowledged that America's expanding trade deficits and foreign indebtedness had reached record levels, he sounded more sanguine than he was several months ago.

In November, Mr. Greenspan predicted to international bankers that foreign investors would show a "diminished appetite" for financing American debt, leading to a sell-off of the dollar.

In contrast, on Friday, Mr. Greenspan shifted emphasis to the relentless expansion of global investment flows.

"Deregulation and technological innovation have driven the globalization process by tearing down the barriers that have separated economic agents," Mr. Greenspan said, reprising a favorite theme. "The effect of these developments has been to markedly increase the willingness and ability of financial market participants to reach beyond national borders."

Though Mr. Greenspan has made similar arguments before, he seemed more intent on easing international anxieties and describing the country's indebtedness as a result of broadly positive trends in globalization and strong American growth.

The G-7 talks, which end on Saturday, are likely to devote much attention to the federal budget in the United States, trade deficits, the weakness of the dollar and the linkage of China's currency to the dollar.

But, according to remarks by participants on Friday, the discussions seemed unlikely to make substantial progress on persuading China to adopt more flexible exchange rates. Indeed, Zhou Xiaochuan, governor of China's central bank, said that his government was not ready to lift its current peg against the dollar.

But Chinese officials have hinted that the country may move to a system of flexible exchange rates at some point.

Much of the focus Friday was on a speech by Mr. Greenspan that analysts examined for clues as to the most likely way that the United States trade and budget deficits could be reduced.

READ FULL STORY ...

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China: No Yuan Timetable (February 06, 2005)

Greenspan Sees U.S. Trade Gap Stabilizing and Possibly Falling (February 06, 2005)

If Yuan Moves, Will U.S. Rates Go Up? (February 04, 2005)

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