On Friday, May 19, Former Fed chief Alan Greenspan spoke before a crowd of Manhattan commercial real estate executives at CB Richard Ellis' annual Forecast Breakfast. After initial remarks that centered largely on the challenges of oil supply and demand, Greenspan settled down for a one-on-one interview moderated by Boston Properties chairman Mort Zuckerman. Zuckerman asked Greenspan a range of questions, dealing with issues ranging from the housing bubble to interest rates. But the question that held the most intrigue focused on the macro-economic picture and the dangers that lie ahead. Following are excerpts from Greenspan's thoughts on the question as well as some reflections on the housing bubble:

"Our major problems are not economic but political. On Medicare we have already severely over-committed to the next generation. Congress can make promises, but few people are estimating properly concerning the needs of retirees and the existing workforce in the generation after the baby boomers. We will have to have doctors, nurses, hospitals and an array of medical services. But supplied by whom?

"Another problem is education. We're not training our people sufficiently in needed skills, and our failure to bring people through school and into college leaves a disproportionate part of our workforce in unskilled areas where they will be needed less. We need to figure out why our fourth-grade students seem to do reasonably well, but by the 12th grade they're at the bottom of the heap.

"In terms of a housing bubble, the bottom line is that the boom is over. The froth that concerned me a few years ago is deflating. The cause of the bubble was an extraordinary surge in investment housing, and the result was that the turnover rate was going up. Now we're starting to see prices flattening, but they're coming down gradually.

"The UK and Australia can actually be models for the way the situation will shake out in the United States. They both had a much bigger boom, but prices just flattened and now they're actually coming back. We ought to be able to work our way through this without significant problems."