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Greenspan Issues Warning on Deficit

The top U.S. central banker says huge and persistent U.S. trade deficits could hurt the U.S. economy.

In a Friday speech to German bankers, U.S. Federal Reserve Chairman Alan Greenspan said the American economy has so far proven resilient. But he warned against complacency.

The broadest measure of trade, called the current account deficit, hit a record high earlier this year of $166 billion in the second quarter. So far, foreigners have been willing to lend the United States money to finance the imbalance.

But the concern is that foreigners could decide abruptly to unload these investments in U.S. stocks and bonds. Analysts say that could cause the stock market to fall and interest rates to soar, damaging the the U.S. economy.

Some information for this report provided by AP, AFP and Reuters.