Greenspan: Economy has withstood blows

WASHINGTON -- Federal Reserve Chairman Alan Greenspan told Congress on Thursday that a year after the terrorist attacks, the U.S. economy appears to have done a good job of withstanding a series of severe blows, "although the depressing effects still linger."\nGreenspan cautioned that such problems as the terrorist attacks and the huge drop in stock prices were still having a lingering impact on growth as the country tries to mount a sustained recovery from last year's recession.\n"The U.S. economy has confronted very significant challenges over the past year--major declines in equity markets, a sharp retrenchment in investment spending and the tragic terrorist attacks of last September," Greenspan told the House Budget Committee.\n"To date, the economy appears to have withstood this set of blows well, although the depressing effects still linger," Greenspan said.\nThe Fed chairman said one area of major impact was on the federal budget, which has seen projections of a decade of surpluses of more than $5 trillion replaced with the return of huge deficits.\nThe Congressional Budget Office is now predicting that the deficit for this budget year, which ends on Sept. 30, will hit $157 billion after four straight years of surpluses, the longest such stretch that the budget has been in the black in seven decades.\nGreenspan said the sharp fall in stock prices, which have been tumbling since the spring of 2000, was a major reason that government revenues have declined and he said this impact "will likely damp tax revenues relative to earlier expectations for some time."\nDespite the deteriorating surplus forecast, Greenspan rejected suggestions by Democrats on the committee that some of the $1.35 trillion in tax reductions over the next decade that were approved by Congress last year should be rescinded.\nGreenspan said that many businesses had already made investment decisions based on the expectation of those future-year tax cuts and would see their elimination as a tax increase.\nHe did say he would support a trigger-mechanism that would tie any tax increases or big spending hikes that Congress passes in the future to the realization of surplus projections.\nAsked whether a U.S. war with Iraq could cause a spike in oil prices that would be severe enough to push the country into a recession, Greenspan said he viewed this as a remote possibility.