Greenspan warns of rising deficits

WASHINGTON -- Outgoing Federal Reserve chairman Alan Greenspan warned yesterday that America's exploding budget deficit and a protectionist backlash against soaring trade deficits could disrupt the global economy.

On a day when he was being honored in London for his nearly two decades in the world's highest-profile economic job, Greenspan restated some familiar worries.

He said US deficits are set to soar with the pending retirement of 78 million baby boomers, and he suggested that Congress consider trimming Social Security and Medicare benefits because the government probably has promised more than it can afford, especially in health benefits.

If something isn't done to trim benefit costs, the resulting budget deficits would ''cast an ever-larger shadow" over the future living standards of Americans, Greenspan said in a taped speech delivered to a conference sponsored by the Philadelphia Federal Reserve Bank.

The centerpiece of the Fed conference was a panel moderated by Philadelphia Fed president Anthony Santomero on ''Fiscal Imbalance: Broader Implications for the Macroeconomy." One participant, Dallas Fed president Richard Fisher, hammered home the message on budget deficits, saying the central bank must not compromise its pledge to fight inflation by accommodating federal budget shortfalls.

Besides Fisher, other members of the panel included Harvard University economist Robert Barro and University of California-Berkeley economist Alan Aue.

In contrast to Greenspan's worries about future threats to the economy, President Bush went to the White House Rose Garden yesterday to highlight a report showing that the labor market was rebounding strongly from the impact of recent hurricanes, creating 215,000 jobs last month.

''We have every reason to be optimistic about our future," Bush said.