WASHINGTON -- Alan Greenspan has warned Americans that they face a grim future of perpetual deficits unless the U.S. Congress acts quickly to rein in hefty pension and medical benefits for retiring baby boomers.

The U.S. Federal Reserve Board chairman said yesterday that the problem of the current budget deficit -- forecast by the White House to hit a record $521-billion (U.S.) this year -- could pale next to the deficits looming just a few years ahead.

Mr. Greenspan called the longer-term budget quandary "daunting" and "sobering" -- his sternest warning yet about the country's deteriorating fiscal situation.

Testifying before a Congressional committee, Mr. Greenspan said the U.S. government has promised future generations more than it can afford in Medicare and Social Security benefits without undermining the economy.

"Our problem essentially is [that] we have been making commitments without focusing on our capability of meeting them," Mr. Greenspan said in response to questions from members of the House of Representatives' budget committee. "It is terribly important to make certain that we communicate to the people who are about to retire what it is they're going to have to live with . . . This is a much larger problem than we can basically handle."

Congress passed a costly health care bill last year that provides partial prescription drug coverage for seniors. As he has said in recent weeks, Mr. Greenspan urged Congress to fill the growing budget gap "primarily, if not wholly," by curbing spending, rather than raising taxes -- a position that puts him in synch with U.S. President George W. Bush.

He also floated the controversial idea of cutting benefits to retirees by raising the eligibility age for Social Security and adjusting the way benefits are indexed to inflation. Mr. Greenspan insisted, however, that benefits should not be cut for those "in or near retirement."

Indeed, Mr. Greenspan, who turns 77 next week, said Social Security and Medicare reform is so urgent because the front end of the baby boom generation is slated to begin receiving benefits in 2008. And, retirees should know well in advance what they can expect to get, he said.

That sentiment was immediately echoed by Mr. Bush. "Benefits should not be changed for people at or near retirement," Mr. Bush told reporters at the White House.

For the first time, Mr. Greenspan also acknowledged that higher taxes may be needed to keep the deficit in check. But he insisted that tax increases should be a last resort. Likewise, he said the United States can't grow its way out of the deficit hole.

"I am fully aware of the fact that it may not be possible to keep the tax rate down and still maintain some semblance of deficit control," he said. "But . . . I would strongly recommend that the priority of evaluation start with the expenditure side -- what can be constrained, what can be reduced. And only after you've run out of all of those options would I [revert] to the revenue side."

By stressing spending cuts over tax hikes, Mr. Greenspan has waded into an increasingly intense political debate about what to do as Mr. Bush's tax cuts begin to expire later this year.

Democratic presidential candidate John Kerry, a Massachusetts Senator, has suggested that tax breaks, at least for the wealthiest Americans, should be allowed to expire.

Mr. Bush has insisted, however, that all of the tax cuts should be made permanent.

When the most recent tax cuts were passed in 2001 and 2003, Congress opted to allow key provisions to expire as a way to keep the price tag down and limit sticker shock.

Mr. Greenspan gave Mr. Bush and tax cut supporters a crucial endorsement by suggesting in 2001 that letting the then budget surplus grow too large might be damaging to the economy. He acknowledged yesterday that the tax cuts have helped swell the deficit. But members of the committee failed to pick up on the apparent inconsistency, and none asked about his earlier enthusiasm for tax.

And in his prepared testimony, Mr. Greenspan spoke of the damaging effect of accumulating too much debt, which he warned would "drain away funds from private capital formation" and curb rising living standards.

Greenspan has gotten way too political. And I suspect he's got some alzheimers setting in. The dude needs to be replaced.

I would think there's a whole lot of folks pissed that their social security they were planning on is possibly going to be cut. Why keep paying into it then?

I can't imagine any fiscal conservative being willing to continue paying a tax designed for their retirement that they won't receive any benefit from.

Now, not only will our decendents have to pay off this atrocious national debt, but now they'll have the added burden of supporting all the aging Americans that were screwed out of their retirements and lost their pensions because of corrupt corporations.

Greenspan actually killed off Bush's
re-election chances with that speech. Social Security is a sacred cow that is rightly so untouchable. GW will have to do a lot of shuckin and jivin to get this issue away from the Dems.
If congress had left all of the funds that were paid in to SS accrue rather than using them for other programs, all of this wood be moot as there would be sufficient funding into perpetuity.

The insolvency of SS has been a back-burner issue for decades.

The deficit has exasperated the problem.

It started when JFK "temporarily" borrowed from SS. Like most all gov't actions the "temporary" became permanent.

I think GWB can weather this, but it's a long time til Novenber.

It seems to me that Greenspan is merely speaking the truth. There will be a price to pay for GWB's half witted tax cuts and his selective pre-emptive war policy.

Sorry but it was the Democrats long before GW became president who "borrowed" funds from Social Security which means they spent it.They called it a lock box but if you do some reading on the subject you will see that instead of savings like a 401K the SS "trust fund" has found its way into the general fund and alot of the money has been spent. SS is operating at a surplus now but in ten years it won't be. That would not be possible if the money had not been spent instead of locked away to grow.

Maybe Grandpa but the problem may have been much more manageable without the current deficit.