Federal Reserve Chairman Alan Greenspan said today that the U.S. government’s budget deficit is a threat to the nation’s long-term stability.

Greenspan said the deficit is more cause for concern than other imbalances in the U.S. economy, like the country’s trade gap and household indebtedness.

“The resolution of our current account deficit and household debt burdens does not strike me as overly worrisome, but that is certainly not the case for our yawning fiscal deficit,” Greenspan said in prepared remarks to a conference given by the Federal Reserve Bank of Chicago.

“Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability because the budget deficit is not readily subject to correction by market forces that stabilize other imbalances,” he said.

Greenspan noted that the federal deficit, estimated to climb above US$500 billion this year, will amount to 4.25% of the total economy after being in surplus just a few years ago.

He said one of the biggest concerns was that the deficits now were occurring right before the first wave of baby boomers will begin retiring.

“We have legislated commitments to our senior citizens that, given the inevitable retirement of our huge baby-boom generation, will create significant fiscal challenges in the years ahead,” Greenspan said.