Tuesday, October 13, 2009

Former Treasury official's prescription for deficit reduction

Former deputy US Treasury secretary Roger Altman wrote an opinion article published in the Financial Times this weekend (http://tiny.cc/omEn6) in which he expressed significant concern over the level of budget deficits and their effect on interest rates and the US dollar.  Mr. Altman points out that the continued budget deficits over the next 10 years would result in the Treasury having to borrow $4 trillion annually and asks the question "does anyone think that once recovery takes hold and private demand for capital strengthens, the Treasury will raise $4 trillion per year at below 4 per cent, as it is doing today?"

Altman sees the potential for rising inflation, rising interest rates and significant decline in the value of the dollar unless something is done to get the US budget deficit under control.  His proposal-- legislation creating a bipartisan deficit reduction group of administration and congressional leaders who will study the possible solutions for cutting spending and raising revenues and make recommendations by December 31, 2010 that are then submitted to Congress for an up or down vote.

We can hope our leaders will do something like Mr. Altman has proposed and we can also hedge against the rising inflation, higher interest rates and weaker dollar in the event they don't.