Fed chief: Medicare, Social Security pose threats

“If existing promises need to be changed, those changes should be made sooner rather than later,” he told the House Budget Committee.

Making promises of retirement benefits that cannot be delivered, Greenspan said, was “utterly inappropriate. It is unfair.”

Greenspan reiterated that he supports President Bush’s push for setting up personal retirement accounts by diverting up to 4 percentage points of payroll taxes into the new accounts.

Diverting the payroll taxes into the Social Security trust fund, he said, had merely allowed the government to run larger budget deficits. Greenspan said that switching to the private accounts would be a way to bolster the nation’s low savings rate.

In his prepared testimony, Greenspan did not repeat the cautionary message he sent last month: Creation of the accounts should be done slowly to gauge the impact the increased borrowing that will be needed will have on financial markets.

“The one certainty is that the resolution of the nation’s unprecedented demographic challenge will require hard choices and that the future performance of the economy will depend on those choices,” Greenspan said.

The Fed chief said that unless growth in the huge benefit programs is restrained, these programs will require more and more government resources, rising from about 8 percent of the total economy currently to 13 percent by 2030.

“In the end, the consequences for the U.S. economy of doing nothing could be severe,” he said.

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Stocks close higher, extend month’s big gains After flooding economy, Fed to mop up money Black workers' crisis may linger after upturn Dubai says Dubai World is on its own Mideast markets nosedive amid Dubai woes Oil rises amid fears of Iran, U.K. conflict Lessons from ‘80s don’t bode well for economy Bernanke’s case to keep Congress out of Fed U.S. to lean on mortgage companies Jobs, spending data hint at recovery Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: