Dec. 2 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan said widening federal budget deficits may have "severe" consequences for the U.S. economy and recommended spending cuts to close the gap.

Greenspan cited the rise in retirement and medical costs, including Social Security and Medicare, as major threats, and said concern about the budget looms over a "positive" outlook for the economy. The remarks came in the text of a videotaped speech to be shown at a Philadelphia Fed bank conference today.

The speech is one of the final opportunities for Greenspan, 79, chief of the central bank since 1987, to repeat his concern about the budget before he steps down Jan. 31. His nominated successor, former Fed governor Ben Bernanke, told a Senate panel Nov. 15 that he probably won't comment on specific federal budget issues.

"Crafting a budget strategy that meets the nation's longer-run needs will become more difficult the more we delay," Greenspan said in today's speech. "In the end, the consequences for the U.S. economy of doing nothing could be severe."

Greenspan said the U.S. economy "has delivered a solid performance thus far in 2005." Even after the disruptions from the hurricanes, "economic activity appears to be expanding at a reasonably good pace as we head into 2006."

Greenspan will retire after the Fed's January rate-setting meeting, when his non-renewable term on the Board of Governors ends. He will speak in London later today on international imbalances at the U.K. government's Advancing Enterprise Conference.

Greenspan told Congress Nov. 3 that lowering the deficit further in the near term "will be difficult in light of the need to pay for post-hurricane reconstruction and relief."

In his remarks today, Greenspan said "tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth." Such risks are "sufficiently worrisome to warrant aiming, if at all possible" to use mainly spending cuts to close the gap.

To contact the reporter on this story:
Scott Lanman in Washington at  slanman@bloomberg.net.

Last Updated: December 2, 2005 09:01 EST

Commentary:
The debt rose from $2.3 trillion to over $8 trillion under Greenspan. It's a little late for him to be thinking about deficits, debt and the failure of his policies. Greenspan supported Bush's tax cut which were partly responsible for the debt rising $2.3 trillion in less than five years (about 25% of all the debt in our nations history). He also opposed the Clinton budget plan because it raised taxes on the rich. You'll recall the Clinton plan balanced the budget four years in a row. All in all, Greenspan was probably gon down as the worst Fed Chairman in our history, but future generations will have the final say. Those generations will also be paying the taxes he and the GOP created with their "borrow and 'give to the rich' tax cutting scheme" so I'm of the opinion he's screwed.