WASHINGTON, 3 March 2005 — There is little evidence that central banks around the world are moving away from the US dollar as their main reserve holding, Federal Reserve Chairman Alan Greenspan said yesterday.
Appearing before a congressional panel, the US central bank chief expressed confidence that foreigners have not lost their appetite for dollar assets, despite “rumors” of the contrary in the media.
“That may occur somewhere down the line, years ahead, nobody really knows for sure, but there is very little evidence that what is occurring recently is more than technical moves backward and forward in the holding of debt,” Greenspan said.
Greenspan also said that purchases of US Treasury bonds by foreigners “has lowered long-term interest rates modestly.” As a result, he said any potential slowdown or reversal of the purchases would cause only a modest increase in rates.
The US currency tumbled last week on reports that the South Korean central bank had announced plans in Parliament to divest some of its vast dollar reserves, which total over $200 billion.
However, Korean officials later said they had no plans for large-scale sales of greenbacks.
Greenspan also urged Congress yesterday to act on the “pressing” problem of the budget deficit, while endorsing the notion of private accounts in the social security pension system.
“Our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken,” Greenspan told the Budget Committee of the House of Representatives.
Contrary to the notion of some conservatives, Greenspan said the US economy cannot simply grow its way out of the deficit. “The combination of an aging population and the soaring costs of its medical care is certain to place enormous demands on our nation’s resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate,” he said.
Greenspan offered a more detailed endorsement of the notion private accounts within the social security retirement system, a controversial plan being proposed by President George W. Bush.
“In my view, a retirement system with a significant personal accounts component would provide a more credible means of ensuring that the program actually adds to overall saving and, in turn, boosts the nation’s capital stock,” he said.
But he also argued that the Medicare program, the medical component of the social security system “is far more problematic” than the pension system and is more difficult to predict.
Meanwhile, planned job cuts increased 17 percent in February to 108,387 in the United States, boosted by increased merger and acquisition activity, outplacement firm Challenger Gray and Christmas reported yesterday. Nearly 50,000 of the announced layoffs, or more than 40 percent, were directly due to mergers, the firm said.
Most of the merger-related cuts were in telecommunications. During the month, SBC Communications announced plans to acquire AT and T, while MCI agreed to a deal with Verizon. February was the fourth month in the last five in which announced job cuts exceeded 100,000. Announced layoffs were up 40 percent from February 2004’s 77,250.
The Challenger survey covers announcements of job reductions at US companies, not actual layoffs.
The announced cuts can take place immediately or over a period of months, sometimes through voluntary actions such as quitting or retiring. “The numbers do not necessarily mean the job market or the economy are backsliding,” said John Challenger, chief executive of the outplacement firm. “In fact, the cuts are probably more indicative of an energized economy that is continuing to build momentum.”
The Challenger data are not seasonally adjusted. The Challenger survey covers only a small portion of job losses; most small businesses do not announce job reductions.
