WASHINGTON - Federal Reserve chairman Alan Greenspan warned Tuesday that the US budget is on an "unsustainable" path, while endorsing President George W. Bush`s analysis that the pensions system needs radical change.
Greenspan told a Senate special committee on ageing that projections predict spending on Social Security retirement benefits, as well as on state medical aid, to rise to about 13 percent of gross domestic product (GDP) by 2030 from eight percent now.
At existing tax rates, "these projections make clear that the federal budget is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years", he told the committee.
"In light of these sobering projections, I believe that a thorough review of our commitments -- and at least some adjustment in those commitments -- is urgently needed," the powerful central bank chief said.
"The necessary adjustments will become ever more difficult and larger the longer we delay."
Greenspan`s comments to the senators reaffirmed his view expressed on March 2 that the US budget deficit must be addressed, and endorsing the notion of private accounts in the Social Security system.
Democrats, however, dispute Bush`s assertions that the system is headed for bankruptcy as the "Baby Boomer" generation retires and argue that the private accounts would not address the funding gap faced by the pension system.
Greenspan on said private accounts could serve as a "lock box" that would force Congress to cut the deficit and boost national savings over the long run, because the money would not be available for government spending.
Greenspan said the "major attraction" of private accounts is that they can be "constructed to be truly segregated from the unified budget and, therefore, are more likely to induce the federal government to take those actions that would reduce public dissaving and raise national saving."
03/15/2005 15:31 GMT