Friday, October 28, 2005


US Uses 70% Of Worlds Capital

The IMF is worried about the US financial situation. "Massive U.S. deficits, red-hot housing prices, and volatile energy markets could soon dampen American consumption and darken world growth forecasts, the International Monetary Fund's chief economist said in remarks released on Friday."

"'The central concern has to be about consumption growth in the United States, which has been holding up the world economy,' Rajan said. He warned high energy prices, if they feed inflation and inflationary expectations, could cause the U.S. Federal Reserve to raise rates faster and further than now expected and lead to an abrupt fall in consumer spending."

"'My greatest worry is not that U.S consumption will slow; it has to, because it is being fueled by unsustainable forces,; Rajan said. 'My worry is that it will slow abruptly, taking away a major support from world growth before other supports are in place.'"

"Rajan cited the U.S. current account deficit, approaching 6.25 percent of gross domestic product and more than 1.5 percent of world GDP this year, as another key source of global instability. To finance it, the United States needs to pull in 70 percent of all global capital flows, he said, adding oil producing Middle Eastern countries were increasingly filling the gap as their surpluses eclipse emerging Asia's."

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