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.

[expatpat]

At around the same time, the retirement age was raised, also.

[CaptainLou]

While I recall several Economists saying that this connection exists, it has never happened and Greenspan, to my knowledge has never stated it in this way.

About the only link you could draw is that long term interest rates declined as the deficit fell in the mid 1990's.

But our deficits are still fairly low compared with the size of the economy, so the impact is minimal. However, if we are running trillion dollar deficits in the next few years then you would likely see an impact in interest rates. What is more disconcerting is the fact that over half of our annual deficit is being bought by the governments of China and Japan. China could cripple our economy if it were to decide to float a large chunk of our debt and instead buy debt in other countries. To continue to sell more debt we'd have to jack up the interest rates that we offer on Treasury bills.

[brownsfan]

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

Really? Can you give me references? That's really a counter-inituitive concept. If government incurs a big debt, and then must service that debt, less is spent on programs, and more is spent on servicing the debt. So, in order to feed it's ever growing hunger, the government will raise taxes. At least that's my understanding.

[Cold Heat]

and slashing benefits

Won't happen.

The benefits will continue to increase with the economy. The way that it is pegged, may change.

[expatpat]

You're wrong, Gramps. Adjusting the retirement age upwards cuts Social Security payments.

[Grampa Dave]

Just for old times sake, I'm recycling the YTD chart of the Gold Index versus my investment into DVY, new dividend share ETF. DVY continues to outperform Gold, ytd.

[Wphile]

SS taxes are 12.4%; Medicare 2.9% for a combined total of 15.3%. There are limits on Social Security income, which are raised periodically - about every two years it seems. For Medicare there is no limit.

The focus of this article is actually wrong. Greenspan didn't advocate cuts in SS, just suggested raising the age or changing the COLA figures.

What he said is the real problem is Medicare because it is virtually impossible to detemine its cost. With an ageing population, advances in medical care, and additional entitlements (prescription drugs), this is the real culprit to our budget problems.

[familyofman]

"Really? Can you give me references? "

read most of the economic related topics around here - you'll find them everywhere. It was proven during the Reagan years that "deficits don't matter". Every argument for making the recent tax cuts permanent will be rife with the statement/argument concerning deficits. Deficits kead to good times - don't worry about balancing the budget.

[kinghorse]

Greenspan isn't supposed to get political in a presidential election year. Forcing the debate now is hugely unsettling to both candidates (Kerry and Bush).

[LibertarianInExile]

And? You were expecting the Baby Boomers or their parents to accept lower benefits instead to save the Republic, right? Uh-huh. I can see that happening, too. /sarcasm

Boy, this thread is like fantasyland. I'm going to Disney World!

[Cold Heat]

Government, like a family, can incur a large amount of debt and service it without giving up the weekly movie.

There is a point that it can indeed be a problem.

We reached one of those times a few years ago when the debt load was higher than now but the interest rates on the debt were very high. The high interest debt had to be retired and new borrowing at much lower interest rates took it's place.

Kind of like refinancing the government.

That is where we are today, and that is why the debt is not a real problem now.

But it could get much worse in about ten years and needs to be controlled so that we have more room to adjust to future SS expenditures..

[SierraWasp]

11:22 Greenspan: Inflation is not permanently subdued

There he goes again!!! The DJIA could use some of his Viagra as just as it finally starts to get it up above 10.6K, he spooks it again!!!

[kinghorse]

Oh and buy Mexican REITS. They are sending their working age folks here to work and pay taxes. We are sending our 50 plus crowd there to stretch a dollar.

[GraniteStateConservative]

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

Well, if the world went to the Euro standard and Asians stopped financing our debt, that could almost happen.

[SierraWasp]

Gold futures are at a 3 month low, this A.M.!!!

[Grampa Dave]

I'm on social security and any adjustments as you noted will not cut my payments. If my trophy bride waits too long to go on Social Security, she will be impacted.

The headlines here are scare headlines to scare senior citizens into not voting for GW. Their current payments and mine will not be cut regardless of what anyone says.

The key is that current payments will not be cut and future payments will/may be deferred.

[Cold Heat]

11:22 Greenspan: Inflation is not permanently subdued

LOL! Always a market hot button.

It always gets pushed.

Just mention the word..................

[Grampa Dave]

Thanks for your clarification of what Greenspan really said not what people assume he said from the headlines:

The focus of this article is actually wrong. Greenspan didn't advocate cuts in SS, just suggested raising the age or changing the COLA figures.

What he said is the real problem is Medicare because it is virtually impossible to determine its cost. With an ageing population, advances in medical care, and additional entitlements (prescription drugs), this is the real culprit to our budget problems.

[happygrl]

The market liked the comments.

LOL, are you inferring that the market reads FreeRepublic ?

Not that it would be a bad thing....

[Cold Heat]

The headlines here are scare headlines to scare senior citizens into not voting for GW. Their current payments and mine will not be cut regardless of what anyone says.

Yes, you can smell the Rats a mile away.

The stench is intolerable.