[FoRK] Uncle Alan: Deficit must be reduced, we need Social Security cuts

jbone at place.org jbone at place.org
Wed Feb 25 09:47:04 PST 2004

There.  Somebody said it.



Greenspan warns against deficits
Moves that would cut Social Security benefits among recommendations 
made by Fed chief.
February 25, 2004: 12:37 PM EST

NEW YORK (CNN/Money) - Fed Chairman Alan Greenspan warned Congress 
Wednesday to take quick action to fix the nation's swollen budget 
deficit -- including measures that could cut some future Social 
Security payments -- to avoid even bigger problems for the nation's 
economy down the road.

The central bank chairman also repeated his assertion that recent tax 
cuts should be made permanent and said cutting spending was a better 
way to fix the deficit than tax increases.

Greenspan, in remarks for delivery to the House Budget Committee, noted 
that the recent surge in the deficit is particularly dangerous, coming 
less than a decade before Baby Boomers begin drawing on federal 
retirement benefits, putting an ever bigger strain on government 

"This dramatic demographic change is certain to place enormous demands 
on our nation's resources -- demands we almost surely will be unable to 
meet unless action is taken," he said in his remarks. "For a variety of 
reasons, that action is better taken as soon as possible."

Greenspan said that, if the demographic shift is permanent -- and 
rising longevity makes that a realistic prediction -- then "significant 
structural adjustments" to Social Security and Medicare would be 
necessary, particularly since Medicare benefits could skyrocket as 
medical technology advances.

He proposed some solutions that would reduce future Social Security 
benefits to retirees, including raising the ages at which retirement 
benefits are paid and changing the inflation measure used to index the 

The government should pay the obligations it already owes to people at 
or near retirement, he said, adding that any cuts in future retirees' 
benefits should be decided as soon as possible so those people can 
adjust their retirement plans.

Still, he denied that he was specifically suggesting that Social 
Security payments be cut, saying he was merely suggesting better 
"technical means" of setting benefits.

In separate remarks to reporters in Washington, President Bush weighed 
in on the issue, echoing Greenspan's assertion that near-term Social 
Security obligations be met.

"My position on Social Security benefits is this: Those benefits should 
not be changed for people at or near retirement," Bush said, Reuters 
news agency reported.

Democrats on the House Budget Committee, in their comments to 
Greenspan, expressed dismay about the prospect of cutting Social 
Security benefits to make cutting taxes easier -- a hint the issue 
could heat up ahead of the presidential election.

Greenspan also said greater budget discipline was needed, and he 
bemoaned the recent expiration of Congressional rules that enforced 
such discipline.

While acknowledging that recent tax cuts had helped worsen the budget 
picture, Greenspan said he favored cutting spending rather than raising 
taxes, suggesting tax hikes could hurt the economy.

"I am fully aware of the fact that it may not be possible to keep the 
tax rate down and still maintain some semblance of deficit control," 
Greenspan said in response to a lawmaker's question. "But ... I would 
strongly recommend that the priority of evaluations start with the 
expenditure side: what can be constrained, what can be reduced."
$500 billion deficit seen

Earlier this month, President Bush unveiled a budget forecast that 
projected a deficit of more than $500 billion, which would be the 
biggest ever in dollar terms. As a percentage of gross domestic product 
(GDP), it seems likely to be the biggest since the mid-1980s. However, 
the forecast did not include hundreds of billions of dollars for other 
costs, such as military expenses in Iraq.

Greenspan said the deficit spending of recent years has helped the 
economy recover from the 2001 recession, and some economists don't 
think the deficit is a short-term problem for the economy.

But Greenspan and other economists have warned that, over time, 
persistent deficits and high government debt will push interest rates 
higher, hurting economic growth and the nation's living standards.

"If no action is taken at all ... we're going to be confronted within a 
few years with a marked upward ratcheting of long-term interest rates, 
which is very debilitating to long-term economic growth," Greenspan 
said in response to a lawmaker's question.

In the short term, Greenspan said, the economy seems to have gathered 
strength and that "prospects for sustaining the expansion" are good.

He said household and business balance sheets were stronger, the Fed's 
super-low interest-rate target was still "highly accommodative," and 
that fiscal stimulus would also help the economy this year, while 
productivity would keep inflation low.

Still, he was not particularly bullish about job growth, which has long 
been a glaring weak spot in an otherwise healthy economy.

"Overall, the economy has lately made impressive gains in output and 
real incomes, although progress in creating jobs has been limited," he 

This view seemed unlikely to change market expectations that the 
central bank will keep its target for a key short-term interest rate, 
already at the lowest level in more than 40 years, unchanged at least 
until the summer.  Top of page

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