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Tuesday, 11 February, 2003, 22:41 GMT
Fed boss in the lion's den
Alan Greenspan meets Senators
The chairman and Senators: No longer smiles all around

The boss of the Federal Reserve, Alan Greenspan, is usually feted by senators on both sides of the political divide when he makes one of his rare public appearances before Congress.

You make statements on fiscal policy, which you should not be doing

Senator Jim Bunning, Republican, Kentucky
So it was a considerable surprise when Republican senators began attacking Mr Greenspan even before he made his prepared remarks on the state of the US economy.

Republican Senator Jim Bunning of Kentucky said that Mr Greenspan may be too influential.

"Your words matter, Mr Chairman, maybe more than they should," Mr Bunning said.

"You make statements on fiscal policy, which you should not be doing."

It soon became clear why the Republicans - who now control the Senate after the November elections - were so upset.

Budget discipline

Mr Greenspan, in the course of his testimony, was undermining President George W Bush's economic plan - his "jobs and growth package" which calls for massive tax cuts to stimulate the economy.

I think he gave the kiss of death to the (White House) plan that was offered this year

Democratic minority leader Tom Daschle

Mr Greenspan warned senators that the huge budget deficits contemplated by that plan would have negative economic consequences, and that there was an urgent need to restore budget discipline.

And he also contradicted the assertion of the budget director, Mitch Daniels, that higher economic growth would eventually correct the deficit.

"Economic growth cannot be safely counted upon to eliminate deficits and difficult choices will be required to restore fiscal discipline," he said.

Mr Greenspan did endorse the principle of eliminating the double taxation of dividends, the centrepiece of the president's tax plan.

But he then proceeded to say he did not believe any stimulus plan was needed until the "geopolitical uncertainty" hanging over the economy was resolved.

"Unless and until we can make a judgment as to whether there is underlying deterioration going on - and my own judgment is I suspect not - then stimulus is actually premature," he said.

Turn-around

Mr Greenspan's testimony had even more impact because two years ago, it was Mr Greenspan's support for the Bush tax package helped secure its passage by garnering support among moderate Democrats.

Senator Tim Johnson, the South Dakota Democrat who narrowly won re-election in November, said that he was angry now that he had supported the $1.3bn tax cut in 2001.

And later, Senate minority leader Tom Daschle said that Mr Greenspan's remarks would be a fatal blow to the new plan.

"I think Alan Greenspan two years ago breathed life into the administration's proposal for tax cuts, " he said.

"Today I think he gave the kiss of death to the plan that was offered this year."

The White House is not giving up on its tax plan just yet.

Mr Bush and his economic team plan to fly around the country over the next two weeks to take his case to the American people.

And the president also met with one of his main Republican critics, Senator Charles Grassley.

Later, Mr Grassley said he thought the president would eventually get most of his proposals through Congress.

But there is a new, and highly partisan climate that could still produce the kind of deadlock was that was so familiar when Congress last faced big budget deficits just 10 years ago.


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

11 Feb 03 | Business
11 Feb 03 | Business
20 Dec 02 | Business
19 Nov 02 | Business
13 Nov 02 | Americas
27 Sep 02 | Newsmakers
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