Greenspan warns against deficits (says to cut social security)

CNN ^ | 02/24/04

[hoosierboy]

NEW YORK (CNN/Money) - Federal Reserve Chairman Alan Greenspan warned Congress Wednesday to take quick action to fix the nation's swollen budget deficit, saying it could impair the ability to pay Social Security benefits and weigh on the broader economy.

[anniegetyourgun]

It's the best route (along with means testing), and once again, only the R candidate has the courage to say so.

[OldFriend]

The age when people begin to collect social security has already been raised. Most folks just don't realize it.

[Cold Heat]

My main problem with privatization is the fact that government would be involved in private markets. There is just something about that, which is bothersome.

I do like the idea of the 5% contribution to index funds or something restricted. It would be preferable and better for everyone in the end, but the devil is in the details.

[SierraWasp]

"The market liked the comments"

Not if you look at the first hour of trading this morning. The market was "taking off" till the "BULLETIN" appeared on the top of http://BigCharts.MarketWatch.com, then it stalled and is stuck now where it stopped in it's tracks!!!

[Cold Heat]

Someone has to inform Greenspan about the fact that "deficits don't matter".

They generally do not, but Greenspan's worry is the baby boomer retirement that is just around the corner. High deficit spending would not be the thing to have when adjusting to the sudden increase in outlays at that time. that is what he has consistently harped on and warned congress about.

under normal circumstances, deficit spending for short periods is of little consequence to interest rates or anything else. As history has shown repeatedly.

[drypowder]

Clinton cut SS benefits by instituting a tax on them. That's a tax on monies that had already been taxed. I don't recall people coming unglued about that.

[jackbill]

What Greenspan and the politicians never mention is the fact that Federal Military and Civilian pensions are handled in exactly the same way that Social Security is (i.e. unfunded) and that stuff will also hit the fan at the same time.

Since the federal pensions are a lot more generous than Social Security, the problem is not insignificant. It is about one-third the size of the Social Security problem.

[Cold Heat]

Stalling is normal every time the Fed speaks. Sometimes it even goes down quickly in a sell off, ahead of predicted bad news, but this is just the repeat of the same stuff the Senate hearing went through a few days ago, so there are few if any surprises expected.

this is a political year however and the dems are trying to get him to say something that would disturb the markets for political gains.

[familyofman]

"under normal circumstances, deficit spending for short periods is of little consequence to interest rates or anything else. As history has shown repeatedly."

So are you saying these are "normal" cicumstances and "deficits don't matter", or are you saying we're no longer in "normal" circumstances.

Do deficits now and for at least the next five years constitute "normal" for you. They sure don't for me!!!

Don't worry - be happy - deficits don't matter.

[Wphile]

My main problem with privatization is the fact that government would be involved in private markets. There is just something about that, which is bothersome.

This is a common misconception about SS privatization. The government would not be investing in the private markets. Individuals would. As an individual, you get to control a portion of your contribution to the SS system. The government is not involved. No one has ever proposed having the government invest in the market - too many conflicts of interest come into play. Actually, Clinton mentioned it once and it was quickly shot down by all involved and eventually he recanted on this idea as well.

[Grampa Dave]

As usual the left wing mediots use the wrong terminology to scare the old people on social security.

Greenspan did not say Social Security Payments must be cut.

He said the following:

http://cbs.marketwatch.com/news/story.asp?siteid=bigcharts&dist=news&guid=%7B1BA0C453%2DFDFC%2D4C65%2D8949%2D8B337C0AE847%7D

"In his testimony Wednesday, Greenspan suggested that changes be made in Social Security to limit cost-of-living increases and perhaps to adjust the retirement age.

"We will certainly have no choice but to make significant structural changes in the major retirement programs," he said.

"Changes should be made now to allow those near retirement to adjust their plans. And obligations made to current retirees must be honored, he said."

This is the same bs that Reagan, GW or Arnold want to cut whatever, when they propose a reduction in future expenditures.

[Brownie74]

This is a bunch of crapola!!

CLICK HERE to FReep a poll at our NBC affiliate here in Dallas. The poll was running about 87% against Greenspan the last time I checked it.

[SierraWasp]

"this is a political year however and the dems are trying to get him to say something that would disturb the markets for political gains."

Which was the whole point of my commentary!!! Thank you.

[Cold Heat]

or are you saying we're no longer in "normal" circumstances.

Good question!

I am saying that I agree with Greenspan that the Congress must be more proactive in regard to the coming babyboomer draw down on social Security.

That would include reducing the deficits among other things, like changing the COLA's and looking at the retirement ages.

On this, I believe that Greenspan is repeating a warning that he has given for some number of years now, and he is, of course, right to do it.

[CaptainLou]

In other news, Greenspan proposed spinning money from straw and $#!##!ng gold bricks to reduce the deficit. Yeah, Congress will lower Social Security payments or raise the retirement age. You betcha that'll happen. Right after Jack climbs back down the magic f'in beanstalk.

The easy fix is to change the SS tax structure, I believe right now the tax is something like 12% of the first $87,000 of income, with no tax above that income level. I'd expect you would see something like a cut in the tax rate coupled with a lifting of cap. So perhaps you might see something like a 10% rate on the first $100k of income, or a smaller tax above the cap rate, say a 2% rate above $100k. You could make relatively minor changes such as this and extend the solvency of SS for another 20-30 years. You could also provider greater incentives against early retirement, or even shift the retirement age up one year.

I'm not saying I agree with this approach, but it is probably the most politically palpable. You might also see some economic benefit by reducing the tax on lower income people (perhaps also coupled with a cut in the corporate SS tax rate.

[expatpat]

Senior citizens happen to be the most risk adverse people on the planet. Many of them are still keeping their money in low interest accounts because they are terrified of the ups and downs on Wall Street.

It's actually quite rational. The effect of losing 50% of one's savings is much more unpleasant than the effect of increasing them by 50% is pleasant. For younger folk, there's a good chance of recovering, given time. For the folks who aren't buying green bananas, however, there isn't.

[Xenalyte]

brings pictures in my head of 80 yr old senoir citizens mugging greenspan with their canes outside the capital building after he has given his speech.

Now THAT is a helluva visual.

[SierraWasp]

"(John F'onda Kerry has been a Benedict Arnold and legislative terrorist since Nam!)"

Now THAT's a TAGLINUS MAXIMUS!!!

[Methos8]

A common misconception and totally wrong. If that were to actually happen, it would be because there is no government, nor a U.S.A anymore.

Well Im 26 and I dont expect to get anything. Let me clarify - after they get done raising the retirement age and slashing benefits and doing whatever else, my return will be pretty negligible compared to the 12.4% that I am effectively paying in with each paycheck. Its a sunk cost to my generation.

[Cold Heat]

This is a bunch of crapola!!

Yes, I have pointed out that the story is highly misleading, incuding the title.