Crafting a budget strategy that meets the nation's longer-run needs will become more difficult the more we delay. The one certainty is that the resolution of the nation's unprecedented demographic challenge will require hard choices that will determine the future performance of the economy. No changes will be easy, as they all will involve setting priorities and, in the main, lowering claims on resources.

I agree that the longer-term deficit projections are daunting, even if they do not present a clear and present danger to an expansion now entering its fifth year...Left unchecked, they will become a grave danger to our prosperity and run the risk of seriously undermining the progress we have made in taming inflation.

The United States continues to be a preferred destination for foreign capital, the most mobile of factors.  These flows of international capital have made it easier--or at least less painful--to finance our deficits at low interest rates.  Without capital from overseas, the growth of government spending might have crowded out the growth of household spending.

Our long-term fiscal prospects may be daunting, but we do not suffer from the economic sclerosis that afflicts the Japanese and the major European powers.

Fundamental to our economic strength has been the pro-growth policies the President has championed. Lower tax rates for all taxpayers put money back in the hands of consumers. An increase in expensing for capital investment gave a boost to small businesses. It's important to continue this growth that we make the tax cuts permanent.  It is also important that we exercise fiscal discipline. The increased spending required for hurricane recovery efforts make this all the more important. We are currently on the path to cut the federal deficit in half by 2009, and while economic growth has helped the growth of Treasury receipts quite a bit, spending restraint is the necessary other-half to the deficit-cutting process.

Deficits, while understandable in current circumstances, are nonetheless unwelcome and should be avoided. Excessive deficit spending can lead to higher interest rates, and slower growth.

We need to produce a substantial reduction in our structural deficit over the medium term and begin to reduce the more dramatic longer term gap between our resources and commitments. And we need to restore a reasonable cushion in our structural budget balance to help us deal with future shocks.  If we are unable to begin to generate more confidence in the capacity of the U.S. political system to produce these improvements, we would face a greater risk of future increases in risk premia.

If left unchecked, persistent and widening federal government deficits will have an increasingly corrosive effect on the U.S. economy because, all else being equal, federal government borrowing takes up some of the funds that would otherwise go to finance capital accumulation or to purchase capital assets from abroad.

It is imperative that the nation come to grips with the fiscal implications of the retirement of the baby-boom generation. Creating a budget strategy and implementing policy changes to balance the federal government's budget over the long term will require hard choices, which will become more difficult the longer they are delayed.

The President remains committed to halving the federal budget deficit by 2009, and I believe that that goal remains feasible despite these added costs [from Hurricanes Rita and Katrina].

Going forward, I anticipate that growth in business investment spending will continue to play a major role through the remainder of the year...Moderate growth in government spending appears to be a reasonable estimate. 

Excessive fiscal spending tends to boost output in the short run but eventually adds risks to our economy and restricts the effectiveness of monetary policy. The fundamental issues of how to deal with Social Security and rising retiree health care costs only serve to complicate our challenges with fiscal policy.

The US economy is so large that the deficit over three to five years will have a marginal negative impact...Debt will have a tendency to raise the cost of capital and slow growth.

A permanent correction to the spending imbalances must involve the restoration of fiscal discipline and long-run solutions to the financing problems of Social Security, Medicare, and Medicaid.

Our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken.