Alan Greenspan backed President Bush’s reform of Social Security in his speech before the he Senate Special Committee on Aging.

Reputable Fed boss supports the baisc tenet of the reform, the creation of the private retirement accounts. In his opinion, the privatization of Social Security will help to avoid ballooning deficit in the years to come. Greenspan warned that spending on Medicare, Medicaid and Social Security is projected to rise to 13% of the nation’s GDP in 2030 aginst 8% today.

Greenspan once again came under a squall of Democrats’ criticism as he admitted being worng about the expected budget surplus in 2001, when he endorsed tax cuts suggested by President Bush.

"It turns out that we were all wrong," Mr. Greenspan said to the Senate committee.

"Just for the record, we were not all wrong, but many people were wrong," retorted Sen. Hillary Rodham Clinton, New York Democrat.

In 2001, Greenspan pointed out, "we were confronted at that time with an almost universal expectation amongst the experts that we were dealing with a very large surplus for which there seemed to be no end." Mr. Greenspan said.

He said he would have arrived at the same decision if he were forced to decide today on the same information.

Now, however, Greenspan is seriously worried about the sustainability of the US budget deficit.
"Unless the trend is reversed, at some point these deficits would cause the economy to stagnate or worse," Mr. Greenspan said.

"Under existing tax rates and reasonable assumptions about other spending, these projections make clear that the federal budget is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years," he said.

Greenspan earlier remarked that he is less worried about the trade gap that is expected to smoothe later, but budget deficits pose a real problem.

Greenspan launched the idea of a bipartisan commission that will work on the reform of Social Security.

"Something has got to give soon because we don’t have the choice of not resolving this issue because of the inexorable turn of the calendar," he said, pointing to 78 million of baby boomers that are approaching retirement age.