|
Fed chair rips Clinton plan
|
 |
January 28, 1999: 11:50 a.m. ET
Greenspan says investing budget surplus for Social Security is risky
|
NEW YORK (CNNfn) - Federal Reserve Chairman Alan Greenspan repeated his belief Thursday that investing budget surpluses into equity markets to bolster the Social Security system would be risky to the economy.
Greenspan, speaking before the Senate Budget Committee Thursday, argued against the plan that President Clinton described during last week's State of the Union Address that proposed investing nearly two-thirds of the budget surplus over the next 15 years into stocks for the benefit of Social Security.
In response to a question, the Fed chairman made some of his first detailed comments on the Internet stock craze, saying that "with all of this hype and craziness -- that is something that at the end of the day is more plus than minus."
"Investing a portion of the Social Security trust fund assets in equities as the administration and others have proposed would arguably put at risk the efficiency of our capital markets and, thus, our economy," Greenspan said.
The Fed chairman also said it would be nearly impossible to protect the system from political influences. "Even with Herculean efforts, I doubt it would be feasible to insulate over the long run the trust funds from political pressures -- direct and indirect -- to allocate capital to less than its most productive use," Greenspan told the panel.
Last week, Greenspan expressed similar concerns to the House Ways and Means Committee.
Greenspan said "investing Social Security trust fund assets in equities compromises the efficient allocation of our capital -- which…is so essential to raising our standards of living."
Greenspan also said "there is evidence that suggests that the greater proportion of trustees who are political appointees, the lower the rate of return."
Social Security Warning
Greenspan told the Senate committee the dramatic increase in the ratio of retirees to workers makes "our current pay-as-you-go Social Security system unsustainable."
"While a sharp rise in the number of retirees in about 10 years seems almost a certainty," he said, "the financial and economic state of the American economy in the early twenty-first century is not. We cannot confidently project the large surpluses in our unified budget over the next 15 years, given the inherent uncertainties of budget forecasting."
"How can we ignore the fact that virtually all forecasts of the budget balance have been wide of the mark in recent years?" Greenspan asked.
Greenspan said a tax hike or a cut in benefits will probably be needed to sustain Social Security.
"If we move now to shore up the Social Security program, or replace it, in part or in whole with a private system, and subsequently find that we had been too pessimistic in our projections, the costs to our society would be few," he said. "If we assume more optimistic scenarios and they prove wrong, the imbalances would prove overwhelming and finding a solution would be even more divisive than today's problem."
Greenspan's comments were accompanied by data showing a continued strong economy. With all that in the background, the 30-year Treasury bond was down 14/32 at 101-13/32, for a yield of 5.15 percent.
-- from staff and wire reports
|
|
|
|
|
|
Federal Reserve Board
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
