Greenspan urges "cautious" move to Soc. Sec. accounts -
Wednesday, February 16, 2005 5:34:26 PM
WASHINGTON (AFX) -- U.S. lawmakers must address Social Security by 2008, and President Bush's general plan to introduce personal savings accounts into the system is a good idea, said Federal Reserve Chairman Alan Greenspan Wednesday. But Greenspan urged caution in moving to personal retirement accounts, saying the impacts on financial markets from the trillions of dollars of borrowing necessary to change to such a system are unknown and potentially disruptive to the economy
"If you are going to move to private accounts, which I approve of, I think you have to do it in a cautious and gradual way," Greenspan said
The Fed chairman urged the Congress to move slowly on Social Security reform
Greenspan said he did not know if the bond market would view the increased borrowing as new debt or just replacing an implicit debt with an explicit debt
"How the markets interpret it is really the important issue," and could move interest rates higher or lower depending on their reaction to any new plan
"My caution here is based on not knowing, and not knowing how to know, in advance, how markets will respond," Greenspan said
"If we were to go forward in a large way, and we were wrong, it would be creating more difficulties than I would imagine," Greenspan said
System needs to be changed soon Greenspan told member of the Senate Banking Committee that time is running short to revamp the nation's retirement system
"Real progress on these issues will unavoidably entail many difficult choices," he said. "But the demographics are inexorable, and call for action before the leading edge of baby boomer retirement becomes evident in 2008," Greenspan said
Under questioning by members of the panel, Greenspan says he has "always supported moves" toward the creation of personal accounts to help make the Social Security system sustainable over the long-term
There is a far greater probability that the personal accounts would fully fund Social Security, Greenspan said. The current pay-as-you-go system was only viable because of favorable demographic trends. The ratio of worker for retirees was quite high
"The current system is ill-suited to the demographics that we are expecting to evolve in the future," he said
Greenspan also said creating private accounts could benefit ordinary Americans
"You give wealth to people in the lower and middle incomes who didn't have it before," he said
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