Greenspan: Save It Some Other Way

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WASHINGTON: Maybe the Republicans should have let Alan Greenspan handle Tuesday night's rebuttal. Buried in the Fed chairman's sometimes sunny, sometimes gloomy congressional testimony Wednesday was a theory that Steve Largent sure could have used the night before: President Clinton's plan to save Social Security -- the part about investing in the markets -- could turn around and bite us right in the wallet. Not only does Greenspan share the Republicans' reservations about the government having a vested interest in stocks, he's not too crazy about the macroeconomics either. "The way Greenspan sees it," says TIME senior economics reporter Bernard Baumohl, "it's a zero-sum game."

"If the U.S. pulls the fund's money out of Treasury bills and puts it into stocks, the government still has to find someone else to borrow the money from," says Baumohl. Yields on T-bills will then rise to meet the reduced demand -- and that pushes up the cost of money elsewhere. Outcome: Higher interest rates, higher mortgage rates for homeowners, higher bond prices for corporations looking to reinvest in new technology -- quite simply, a big wet blanket on this wonderful peacetime expansion President Clinton made so much of Tuesday night. "The higher returns on equities make great politics -- and sound great on the surface," says Baumohl. "But ultimately, the switch won't help the economy as a whole." Greenspan for president, anyone?