Former Federal Reserve Chairman Paul Volcker warned on Friday that trillion-dollar deficits posed a threat to the stability of the US economy and the dollar, and said he is frustrated by the gridlock in Washington. Speaking before the World Affairs Council of Oregon, Volcker said that "prolonging trillion dollar deficits can't be a reality" and that the United States is on course to have its public debt exceed the size of its gross domestic product.
"One way or another, we do have to return to a balanced budget," he said in prepared remarks. Volcker's speech came on the same day that the Congressional Budget Office said the US budget deficit had totalled $871 billion for the first seven months of the year, which is significantly above the previous year's pace. On Thursday, US Vice President Joe Biden led a bipartisan meeting in an effort to strike a deal with Republicans on cutting the growing federal deficit and averting a default.
They face an August 2 deadline to raise the country's $14.3 trillion debt limit. Volcker, who stepped down early this year as the chairman of President Barack Obama's Economic Recovery Advisory Board, said he was concerned about how the US consumes and borrows "to the point that China, Japan and other foreign countries hold more than 5 trillion dollars of US government obligations."
In order to address the deficit, Volcker said he agrees lawmakers need to tackle discretionary spending, an area that could help the US save $300 billion from present projections by 2020. But that alone, he said, will not be enough to address the trillion dollar deficits.
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