Greenspan Warns Against 'Euphoria': Fed Chief Says Economy Hiding Major Problems
Federal Reserve Chairman Alan Greenspan yesterday cautioned that recent good economic news is masking such continuing major problems as a ÛÏstill massiveÛ federal budget deficit that, if not reduced, will mean higher interest rates, a falling dollar and higher inflation.</br></br>The tone of much of GreenspanÛªs testimony to a House Banking subcommitteeÛª differed from glowing statements by Reagan administration officials after the release Wednesday of figures showing that the economic expansion continued in the second quarter, with a substantial 3.1 percent rate of increase in inflation-adjusted gross national product.</br></br>"It is difficult to convince people that we have a problem when we unquestionably have a very vigorous economy, one which is by most indicators doing exceptionally well,Û ÛÏThat could very readily lead to a degree of euphoria and an unwillingness to come to grips with difficult problems,Û the Fed chairman said. ÛÏWe will find that when the problem hits, it will be very late in the game and very</br></br>Greenspan said eliminating the budget deficit in steps between now and 1993, as called for under the Gramm-Rudman-Hol-lings law, is ÛÏa good baseline for a multiyear strategy, and I trust the Congress will stick with it. But we should go further. Ideally, we should be aiming at a federal budget surplusÛ to supplement private U.S. saving and help finance private investment.</br></br>bjit added that the emphasis first should be on cutting spending. .Ûª.GreenspanÛªs testimony came two wqeks before the start of the Republican convention in New Orleans. Vice President George Bush, the expected nominee, is stressing the Reagan eco-dbmic record in his campaign. Bush has said there is no need to raise taxes and that he will never do so.