Bernanke warns action needed soon on budget
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Big deficits for aging population leads to higher interest costs, Fed chief says
January 19, 2007
Mark Felsenthal
reuters news agency
WASHINGTON–Federal Reserve Board chair Ben Bernanke bluntly warned the U.S. Congress yesterday that failure to act soon to deal with the budgetary strains posed by an aging U.S. population could lead to serious economic harm.
"We are experiencing what seems likely to be the calm before the storm," Bernanke told the Senate Budget Committee as he acknowledged projections that the U.S. budget deficit could hold steady or even narrow in the near-term.
"However, if early and meaningful action is not taken, the U.S. economy could be seriously weakened, with future generations bearing much of the cost," he added, citing worrisome long-term projections on the cost of programs such as Social Security and Medicare.
"The longer we wait, the more severe, the more draconian, the more difficult the adjustments are going to be," Bernanke cautioned as he answered questions before the panel.
The Fed chair did not discuss the outlook for interest rates in his testimony, the first he has delivered since Democrats took control of Congress after November elections. He is expected to testify on Fed policy on Feb. 14-15.
Bernanke hewed closely to a previous pledge to remain neutral in Washington budget policy debates, steering clear of specific advice on how Congress might meet or lower the projected costs of retirement and health-care programs as he warned of the risks of inaction.
"Dealing with the resulting fiscal strains will pose difficult choices for the Congress, the administration and the American people," Bernanke said.
Bernanke cited projections by the Congressional Budget Office that showed spending on entitlement programs would reach about 15 per cent of U.S. gross domestic product by 2030, a size he said risked fuelling an ever-growing mountain of debt.
"A vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits," Bernanke said.
"Ultimately, this expansion of debt would spark a fiscal crisis, which could be addressed only by very sharp spending cuts or tax increases, or both."
The Fed chief said whatever budget decisions were taken, tax rates would need to be set at a level that achieved "an appropriate balance of spending and revenues in the long run."
Bernanke said advocates of lower taxes would have to accept lower spending on entitlement programs. Proponents of more-expansive government programs must recognize the need for higher taxes brought about by higher spending, he added.
"Unfortunately, economic growth alone is unlikely to solve the nation's impending fiscal problems," he said.
I looked up Draconian, and you guys can see for yourself what that means.
Email story
Choose text size
Report typo or correction
Email the author Tag and save
Big deficits for aging population leads to higher interest costs, Fed chief says
January 19, 2007
Mark Felsenthal
reuters news agency
WASHINGTON–Federal Reserve Board chair Ben Bernanke bluntly warned the U.S. Congress yesterday that failure to act soon to deal with the budgetary strains posed by an aging U.S. population could lead to serious economic harm.
"We are experiencing what seems likely to be the calm before the storm," Bernanke told the Senate Budget Committee as he acknowledged projections that the U.S. budget deficit could hold steady or even narrow in the near-term.
"However, if early and meaningful action is not taken, the U.S. economy could be seriously weakened, with future generations bearing much of the cost," he added, citing worrisome long-term projections on the cost of programs such as Social Security and Medicare.
"The longer we wait, the more severe, the more draconian, the more difficult the adjustments are going to be," Bernanke cautioned as he answered questions before the panel.
The Fed chair did not discuss the outlook for interest rates in his testimony, the first he has delivered since Democrats took control of Congress after November elections. He is expected to testify on Fed policy on Feb. 14-15.
Bernanke hewed closely to a previous pledge to remain neutral in Washington budget policy debates, steering clear of specific advice on how Congress might meet or lower the projected costs of retirement and health-care programs as he warned of the risks of inaction.
"Dealing with the resulting fiscal strains will pose difficult choices for the Congress, the administration and the American people," Bernanke said.
Bernanke cited projections by the Congressional Budget Office that showed spending on entitlement programs would reach about 15 per cent of U.S. gross domestic product by 2030, a size he said risked fuelling an ever-growing mountain of debt.
"A vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits," Bernanke said.
"Ultimately, this expansion of debt would spark a fiscal crisis, which could be addressed only by very sharp spending cuts or tax increases, or both."
The Fed chief said whatever budget decisions were taken, tax rates would need to be set at a level that achieved "an appropriate balance of spending and revenues in the long run."
Bernanke said advocates of lower taxes would have to accept lower spending on entitlement programs. Proponents of more-expansive government programs must recognize the need for higher taxes brought about by higher spending, he added.
"Unfortunately, economic growth alone is unlikely to solve the nation's impending fiscal problems," he said.
I looked up Draconian, and you guys can see for yourself what that means.
