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IMF Cautions About Dangers of Budget Deficit

2:34 PM, Jun 17, 2011 • By MICHAEL WARREN
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The International Monetary Fund (IMF) warned today that the United States is on dangerous economic ground if it does not reduce its budget deficit soon:

SAO PAULO (Reuters) - The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits....

"You cannot afford to have a world economy where these important decisions are postponed, because you're really playing with fire," said Jose Vinals, director of the IMF's monetary and capital markets department.

"We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis," he said in an interview in Sao Paulo, where the updates to the IMF's World Economic Outlook and Global Financial Stability Report were published.

The Senate, meanwhile, has still not yet voted on a budget plan for FY2012. Congressional Quarterly reports that Budget Committee chairman Kent Conrad's (D-N.D.) latest budget plan, being drafted behind closed doors, will rely on closing tax loopholes (that is, raising taxes) and cutting spending partly by reducing interest payments on the national debt:

The plan, though not final, calls for raising revenue by about $2 trillion primarily through eliminating tax expenditures — the term of art that describes the myriad tax credits, deductions and other preferences in the code that benefit individuals, companies and organizations.

Senate Budget Chairman Kent Conrad, D-N.D., said Thursday that “virtually all” of the increased revenue in the proposal comes from eliminating or reducing tax expenditures.

Another $2 trillion in deficit reduction would come from a combination of cuts in government programs and the savings from reduced interest payments on the debt as it grows more slowly because of shrinking deficits.

A Republican source on the Hill notes that the Congressional Budget Office does not score reduced interest payments as spending cuts.

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