Editor’s Note – Though many think Ben Bernanke is as much at fault as the politicians in DC for the disaster that is our financial condition, but when even he warns Congress, people better listen. The problem is, DC is not some monolithic being that can act unilaterally. (Obvious, right?)
But Obama is not listening, at least in a way that would propel him to do anything during his campaign to keep his job so he can have more “flexibility”.
There is no way Obama will work with the Republicans in the House; and the Senate, despite parliamentary attempts to get to a budget, will also do nothing. Why would they change their winning strategy, one that is a clear and present danger to the country.
If you are not scared yet, you are not paying attention. When Bernanke is in fear, we should be in a state of abject horror. But sadly, so many in this country still think Obama is the answer, or they do not want to know, or are oblivious.
By: John Carney, Senior Editor, CNBC.com
Official Congressional budget estimates understate the peril of rising debt, Fed chair Ben Bernanke told the Budget Committee on Capitol Hill today.
Warning that our nation’s fiscal health has deteriorated appreciably since the onset of the financial crisis and the recession, Bernanke called upon lawmakers to confront the long term fiscal challenges sooner rather than later. If lawmakers don’t confront them, they’ll find themselves confronted by them.
By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit. One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will come as a rapid and painful response to a looming or actual fiscal crisis.
Bernanke explained that the Congressional Budget Office’s calculations miss an important reality. As the government’s debt and deficits rise, the economy will slow down—an effect not taken into account by the CBO. So, for instance, when the CBO says that federal spending for health-care programs will roughly double as a percentage of GDP in the next 25 years, it is probably being too optimistic. If debt keeps, rising, GDP will be much lower than the CBO estimates—which will mean that health care spending will be a much larger percentage of the overall economy.
Here’s Bernanke on the effect of rising debt:
Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on U.S. output, incomes, and standards of living. Moreover, diminishing investor confidence that deficits will be brought under control would ultimately lead to sharply rising interest rates on government debt and, potentially, to broader financial turmoil. In a vicious circle, high and rising interest rates would cause debt-service payments on the federal debt to grow even faster, resulting in further increases in the debt-to-GDP ratio and making fiscal adjustment all the more difficult.
In short, the official estimates members of Congress hear from their budget office are under-estimating our dire economic predicament. If fiscal policy is not brought under control, things will be much, much worse.