He's such an idiot...and a Bush republican
Greenspan warns U.S. to get finances in order
From wire reports
WASHINGTON — Federal Reserve Chairman Alan Greenspan said Wednesday that the U.S. economy entered 2005 in good shape, but he warned that fiscal discipline is essential to meet future challenges.
"All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation and inflation expectations well-anchored," Greenspan said remarks prepared for delivery to the Senate Banking Committee.
But he tempered his optimism by warning that the relatively tranquil economic conditions of recent decades must not be taken for granted.
"History cautions that people experiencing long periods of relative stability are prone to excess," he said. "We must thus remain vigilant against complacency."
Greenspan said it is "imperative to restore fiscal discipline" in the United States to help narrow the huge trade deficit. He also said the country has to act before 2008 to prepare for a coming wave of 78 million retiring "baby boomers" and said if it fails to do so, there could be an adverse impact on bond markets.
Touching on one of the hottest issues in Washington — President Bush's proposal to reform Social Security — Greenspan said, "Benefits promised to a burgeoning retirement-age population under mandatory entitlement programs, most notably Social Security and Medicare, threaten to strain the resources of the working-age population in the years ahead.
"Real progress on these issues will unavoidably entail many difficult choices. But the demographics are inexorable and call for action," he said.
In his prepared remarks, Greenspan didn't prescribe any fixes or weigh in on Bush's proposal to allow workers under age 55 to divert a chunk of their Social Security taxes into voluntary, private investment accounts. In previous appearances before Congress the Fed chief has said benefit cuts and possibly tax increases would be needed to close the funding gap faced by Social Security.
Greenspan said inflation, while not an immediate threat, is something policymakers must continue to guard against.
How inflation fares in the coming months will shape whether Fed policymakers — now on a gradual path of raising short-term interest — will need to adjust the speed of the campaign by either speeding up or slowing down, Greenspan indicated.
He gave no direct hint on the direction of future monetary policy, other than to note that even after six quarter-percentage-point interest-rate hikes since June, the federal funds rate "remains fairly low." The fed funds rate is what banks charge each other for overnight loans; it is the Fed's main tool for influencing other interest rates and economic activity.
The Fed chief said it is hard to explain why long-term interest rates have declined in the face of the U.S. central bank's short-term rate increases. He noted, however, that yields and risk spreads "have narrowed globally" — not just in the United States.
"For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum," Greenspan said. "Bond price movements may be a short-term aberration, but it will be some time before we are able to better judge the forces underlying recent experience."
He said, "a pervasive sense of confidence among investors and an associated greater willingness to bear risk" contrasted with continued business caution.