Federal Reserve Chairman Alan Greenspan repeated to the Senate Budget Committee that budget deficits need to be trimmed through the application of a complex of measures.

"The federal budget deficit is on an unsustainable path." Mr. Greenspan emotionally stated: "Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse."

The annual deficits over the 2003-2005 fiscal period averaged $400 billion per year, at the time when economic growth averaged 3.75 percent per year. While Greenspan is often accused by the Democratic senators of having supported the tax cuts that led to a surge in deficits, he reminded his accusers of his idea of implementing ’triggers’ – waiving tac cuts in case the economy fails to meet certain benchmarks. This idea, as Greenspan pointed out, never caught on with the senators, leading to deplorable consequences that could have been avoided.

Greespan called for the restoration of so-called PAYGO requirements, stipulating that the Senate needs to garner 60 votes if it raised entitlement spending or lowered taxes without implementing offsetting spending cuts and tax increases. These budget procedures acted in the 1990s, but were allowed to expire in 2002.

"Reinstating a structure like the one provided by the [1990] Budget Enforcement Act would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process," the Fed chairman said.

Fed chairman recommended "a well-designed set of mechanisms that facilitate midcourse corrections" in order to "ease the task of bringing the budget back into line when it goes off track," obviously referring to triggers.
Greenspan repeated the urge for China to revalue its currency.

"The sooner they move off" the peg, "the better off for China’s economy," Greenspan said in reply to questions.
"As far as I’m concerned, it’s very much in their interest to move," he said. "And as you can well imagine we in the United States government have been in conversations with them to indicate that in our judgment and in our experience they should be moving sooner rather than later."

Greespan shrugged off the worries that the economy may be in for a stagflation when costs are surging, and growth falters.

"It certainly doesn’t seem that way," he said.