It’s Your Children’s Money, Quick Take It!
WASHINGTON – Uncontrolled U.S. budget deficits would pose a serious threat to global prosperity in coming years as rising interest rates depress economic growth in the United States and around the world, the International Monetary Fund (news – web sites) warned Wednesday.
The IMF released a new analysis that predicted if nothing is done to get control of the soaring U.S. deficits, it would shave global economic output by 4.2 percent by 2020 and reduce U.S. economic growth by 3.7 percent during the same period.
IMF economists said much of the adverse impact would occur because of increased borrowing demands in the United States to finance the budget deficit. This would drive up U.S. interest rates and interest rates in other countries as the global supply of available capital is reduced, they said.
“The rest of the world is affected seriously by the U.S. fiscal deficit,” IMF chief economist Raghuram Rajan told reporters in a briefing on the new report.
The IMF’s forecast that the U.S. budget deficit will be a significant drag on growth reflected what will occur if there is no improvement in the deficit, which the Bush administration projects will hit $521 billion this year, a record in dollar terms, and show little improvement in coming years.