Former Federal Reserve Chairman Alan Greenspan warns that cuts may be needed to eventually save the Social Security system.
Greenspan also predicted a slowdown in the U.S. economy could stem from an overloading of entitlement programs that aren’t being funded.
“We’re creating an odd imbalance in the system,” Greenspan recently told Fox Business Network.
“The best way to solve this problem is to fund our benefits, get a balanced budget, and the system will work.”
He said “the actuaries of the Social Insurance system say that in order to be actuarially solvent through the life of the programs, we would have to cut benefits by 25 percent right now and extending into the future.”
He said eventually America will have to come to some resolution with entitlement benefits because “the end of the road is very serious trouble,” while adding that defined benefits have been a big problem.
“Sweden had very much the same problems we did,” Greenspan said. “What they did first to resolve them is go from a defined benefit program, which is what we have now, to a defined contribution. What we have is 401(k). 401(k)s cannot go broke – you can only spend what you get,” he said.
For the immediate economic future, Greenspan couldn’t determine if a recession looms because the economy is moving at such a slow rate.
“I can basically argue that productivity growth has slowed down dramatically because, in effect, as I’ve said many times, that social benefits crowd out gross domestic saving and capital investment, which is at the root of what productivity growth is. So we’ve got to solve that problem,” he said.
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