While the debate over whether we should have personal retirement accounts out of social security money is heating up, Mr. Greenspan is now saying Medicare is a bigger problem. Take a look at this WSJ story about his recent testimony on the state of the U.S. economy to the House Committee on Financial Services (or some excerpts below).

On Medicare:

Again fielding questions from legislators about the U.S. government's long-term liabilities from entitlement programs Thursday, Mr. Greenspan, the past chairman of a 1983 bipartisan commission that last addressed Social Security's solvency, said the funding shortfall for Medicare is "several multiples of what we confront with Social Security."

On Personal Accounts:

The Fed chairman said he favors the establishment of personal retirement accounts to head off the problem, claiming they are a better way to pre-fund future promises of benefits. "These accounts, properly constructed and managed, will create a sense of increased wealth on the middle and lower income classes in this society who have had to struggle with very little capital," Mr. Greenspan said.

The Fed chief acknowledged, to a question from New York Sen. Charles Schumer, a Democratic foe of carving private accounts from Social Security, that the accounts wouldn't address Social Security's long-term financial woes. "In and of itself," he said, "it surely doesn't alleviate the current problem." That would require tax increases and benefit reductions, he said, though he didn't endorse any particular proposals.

On Deficit:

The Fed chief said his support for tax cuts is conditioned on Congress cutting spending to offset them. "My support for the tax cuts is in the context of a pay-go rule," Mr. Greenspan said. "The problems we have with the budget deficit are huge."

Mr. Greenspan was referring to a past practice of Congress, known as the pay-go rule, that required new spending proposals be coupled with offsetting tax increases or spending cuts to avoid increasing the deficit.

On Housing Bubbles:

Mr. Greenspan said that housing markets in several U.S. regions have "characteristics of bubbles," but the central bank doesn't believe regional bubbles will threaten the broader real-estate market. He said consumers are well guarded against any possible declines because most homeowners made a 20% down payment on their home to purchase it. Real-estate prices have risen considerably in recent years to insulate borrowers from a decline in values, Mr. Greenspan said.

Addressing other topics, Mr. Greenspan told lawmakers he sees "no reasonable basis" for Fannie Mae and Freddie Mac to hold vast mortgage portfolios and that Congress should consider gradually limiting their portfolio holdings to fend off "ever-growing potential for systemic risk down the road."

What do you think?