Bernanke has a firm grasp on the obvious: Bernanke Presses For Fiscal Restraint -- Prolonged Deficits Threaten Economy, Fed Chief Warns
From The Wall Street Journal:
The nation needs to begin planning now to eventually bring taxes and spending in line, Federal Reserve Chairman Ben S. Bernanke said yesterday, arguing that large budget deficits, if sustained, could deepen the financial crisis and choke off the economy.
Bernanke's testimony to Congress reflected growing concern among economists and investors that the nation's long-term fiscal imbalances could stand in the way of economic recovery by driving up the interest rates that the government, businesses and consumers pay to borrow money. The rate the government pays has already risen in recent weeks.
The Fed chairman argued that even as the government spends massive amounts of money to contain the financial crisis, it must be prepared to move toward fiscal balance.
The financial crisis is driving the country deeply into the red, with the national debt projected to double from about 41 percent of the economy last year to more than 82 percent by the end of the next decade. Thereafter, things will only get worse, budget analysts say, as the baby boom generation lays claim to benefits from Social Security and costly federal health programs. So far, President Obama has offered no plan to rein in those costs, though he has stressed the importance of reducing the deficit generally.
The U.S. Treasury must now pay 3.5 percent to borrow money for 10 years -- low by historical standards, but up from about 3.1 percent a month ago and 2.9 percent three months ago. The increase has come even as the Fed has launched a program to buy up to $300 billion in Treasury bonds -- purchases designed to push down rates and did, when the program was rolled out in March.
Some analysts worry that the Fed will succumb to political pressure in the future to effectively print money to fund government borrowing -- a process known as monetizing the debt. Two congressmen raised that possibility explicitly in yesterday's hearing.
"This can be a dangerous policy mix. The Treasury is issuing debt. And the central bank is buying it," said Rep. Paul D. Ryan (R-Wis.). "It gives the alarming impression that the U.S. one day might begin to meet its financial obligations by simply printing money. And we all know what happens to a country that chooses to monetize its debt. It gets runaway inflation, a gradual erosion of workers' paychecks and family savings."
The nation needs to begin planning now to eventually bring taxes and spending in line, Federal Reserve Chairman Ben S. Bernanke said yesterday, arguing that large budget deficits, if sustained, could deepen the financial crisis and choke off the economy.
Bernanke's testimony to Congress reflected growing concern among economists and investors that the nation's long-term fiscal imbalances could stand in the way of economic recovery by driving up the interest rates that the government, businesses and consumers pay to borrow money. The rate the government pays has already risen in recent weeks.
The Fed chairman argued that even as the government spends massive amounts of money to contain the financial crisis, it must be prepared to move toward fiscal balance.
The financial crisis is driving the country deeply into the red, with the national debt projected to double from about 41 percent of the economy last year to more than 82 percent by the end of the next decade. Thereafter, things will only get worse, budget analysts say, as the baby boom generation lays claim to benefits from Social Security and costly federal health programs. So far, President Obama has offered no plan to rein in those costs, though he has stressed the importance of reducing the deficit generally.
The U.S. Treasury must now pay 3.5 percent to borrow money for 10 years -- low by historical standards, but up from about 3.1 percent a month ago and 2.9 percent three months ago. The increase has come even as the Fed has launched a program to buy up to $300 billion in Treasury bonds -- purchases designed to push down rates and did, when the program was rolled out in March.
Some analysts worry that the Fed will succumb to political pressure in the future to effectively print money to fund government borrowing -- a process known as monetizing the debt. Two congressmen raised that possibility explicitly in yesterday's hearing.
"This can be a dangerous policy mix. The Treasury is issuing debt. And the central bank is buying it," said Rep. Paul D. Ryan (R-Wis.). "It gives the alarming impression that the U.S. one day might begin to meet its financial obligations by simply printing money. And we all know what happens to a country that chooses to monetize its debt. It gets runaway inflation, a gradual erosion of workers' paychecks and family savings."
posted by Sid Cottingham | 6:15 AM
0 Comments:
Post a Comment
<< Home