Fed's Gramlich says US can't grow out of deficits

Reuters

Fed's Gramlich says US can't grow out of deficits
Wed Jun 8, 2005 11:20 AM ET

MILWAUKEE (Reuters) - The United States cannot grow its way out of its budget deficit problem despite recent improvement in budget and trade numbers, Federal Reserve Governor Edward Gramlich said on Wednesday.

"Fortunately, the budget numbers and the trade numbers have gotten a bit better recently but that doesn't solve the long-term problem," Gramlich said in response to audience questions after a speech to Milwaukee-area business leaders.

He did not discuss the economy or monetary policy in his remarks, which centered mostly on a proposal to rescue Social Security by raising the retirement age in a measured fashion.

Gramlich said the structural problems created by impending retirement costs for the baby boom generation would continue to exist, even if some of the White House's proposals for reform are enacted.

"Individual accounts may or may not be a good idea, but they won't solve the basic actuarial problem" facing Social Security, Gramlich said.

Moreover, "the stock market can be an uncertain mistress," he said, in reference to the level of share prices when retirees actually tap into their accounts.


Gramlich said he was "worried on the fiscal side" and said the country should work to balance the federal budget outside of Social Security.

"Over time, on average, we should try to get the non-Social Security part of our budget in balance," he said.

The United States would go a good way toward fixing the Social Security retirement system by increasing the retirement age, Gramlich said.

He said his proposal to raise the retirement age by a year for each decade of age -- for example, 67 for workers who are now 40; 68 for those who are now 30 -- "is not huge" and that doing this alone would go a long way toward making the system fair across generations.

"As long as we don't confront the retirement age issue, we're putting in a system that just isn't fair," he said.

Of cutting benefits, Gramlich said: "It would cause a lot of difficulties and politically I don't think it's going to happen. You realize in your heart that it isn't the great way to do it."

Gramlich said Medicare was a bigger problem and should actually be dealt with before Social Security. He also said Americans needed to save more.

"In a macroeconomic sense, I would argue that we are not saving. But we ought to."

The Fed governor will step down from his central bank post at the end of August.

"Just one more Federal Open Market Committee meeting and I'll be no different from the man on the street," he quipped.