Alan Greenspan: Forget Interest Rates, We Need to Talk About “Extremely Dangerous” Trend in Entitlements

When former Federal Reserve Chairman Alan Greenspan appeared on CNBC’s Closing Bell this week, he was asked about a topic that Wall Street loves to talk about: interest rates and monetary policy.

Greenspan responded by making it clear that he thinks entirely too much time is spent talking about short-term interest rates when we should be discussing how to stop the “extremely dangerous” trend in Social Security and Medicare, the former of which is currently on track to go bankrupt in less than 15 years. He told CNBC:

To me, the discussion today shouldn’t even be on monetary policy, it should be on how do we constrain this extraordinary rise in entitlements.

Alan Greenspan has been warning about the coming entitlement crisis for years. In 2004, he publicly opposed tax increases, instead proposing that the government gradually scale back Social Security and Medicare benefits. He would also index the retirement age for both programs to life expectancy.

The United States government has over $200 trillion in unfunded liabilities, payments they have promised but won’t be able to afford. The weight of that credit-card mentality will fall heaviest on the youngest Americans.

It’s unlikely that we’ll receive the benefits of the entitlement programs that we’re paying into either. By 2035, the ratio of workers supporting each retiree will drop to two to one, compared to a ratio of five to one in 1960. When Social Security becomes insolvent in 2030, either Social Security taxes will have to increase 33 percent, benefits for seniors will have to be cut by 25 percent, or a combination of the two will occur.

If the system is reformed now, changes could be implemented gradually and less painfully, helping us to avoid a crisis that would disproportionately hurt young Americans.

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