Former Federal Reserve chief Alan Greenspan says the economy will start to fade ‘very dramatically’ because of the structural burden of Social Security and Medicare
- Long-term economic growth will dramatically recede ‘because of entitlements’
- Former Fed Reserve chief Alan Greenspan issued a dire warning that programs such as Medicare and Social Security would push economic growth off a cliff
- He pointed to a vast, ageing population that represents an enormous burden
- He added that Europe’s economic struggles coupled the entitlements in the U.S. make for a turbulent set of circumstances, despite current solid financial growth
- Greenspan added: ‘We’ve got this significant continued drain coming from entitlements, which are basically draining capital investment dollar for dollar’
Entitlements are draining capital reserves ‘dollar for dollar’ according to the former Federal Reserve Chairman, Alan Greenspan.
Greenspan, 93, who was known as the ‘Maestro’ during his 19-year tenure which ran from the Reagan to the George W. Bush administrations, said the cost of Social Security and Medicare programs would eventually push economic growth off a cliff.
He pointed to a rapidly ageing population for the eventual significant downturn, despite the U.S. economy enjoying solid growth of late.
Greenspan, who was known as the ‘Maestro’ during his 19-year tenure which ran from the Reagan to the George W. Bush administrations, said the cost of Social Security and Medicare would eventually push economic growth off a cliff
The long-time central bank chief repeated his dire warnings about the weight such programs are having on what has otherwise been consistent gains over the past several years.
‘I think the real problem is over the long run, we’ve got this significant continued drain coming from entitlements, which are basically draining capital investment dollar for dollar,’ he told CNBC during a ‘Squawk on the Street’ interview.
‘Without any major change in entitlements, entitlements are going to rise. Why? Because the population is aging.
‘There’s no way to reverse that, and the politics of it are awful, as you well know,’ Greenspan added.
Though the economy looks ‘reasonably good’ in the short term, he warned that the growth will ‘fade very dramatically.’
In its latest GDP forecast, the Atlanta Fed now sees the increase running at 2.3 percent. A month ago, the tracker had put the level at 0.2 percent.
Greenspan indicated that the improvement stems from stock market price rises but they cannot be maintained because – despite being the S&P 500 being on track for its best ever performance – Europe’s economic struggles coupled entitlements in the U.S. make for a turbulent set of circumstances for growth.
The long-time central bank chief repeated his dire warnings about the weight such programs are having on what has otherwise been consistent gains over the past several years
He said: ‘Europe is not doing well and we still have very substantial fiscal problems associated with entitlements.
‘The stock market rally to date has already built in a significant rise in GDP in the current period,’ he added, indicating that he sees a ‘stock market aura’ in the economy.
A rise of 10 percent in the S&P 500 corresponds to a 1 percent real GDP increase, he said.