Bernanke to Congress: We're Much Closer to Total Destruction Than You Think

In the face of mounting skepticism from the traditional Left, and some on the Right, the consequences of unrestrained deficits and debt were addressed by Helicopter Ben, himself. The answer? Not good. For all those who think we can continue on our merry way, down the well-trodden path of Greece, Ireland, Portugal, Italy and Spain. Maybe even an Argentina or Mexico? Please read. From the horses mouth:


Bernanke to Congress: We're Much Closer to Total Destruction Than You Think
http://www.cnbc.com/id/41491193/

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.

From Bernanke's prepared remarks:

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.

 

This is the first time I've been impressed by testimony from Bernanke. Of course our politicians will continue to ignore reality and keep spending money we don't have.

 

That's why spending will be cut and taxes will be raised, because there is no other way. Fasten your seatbelts, it will be a bumpy ride. (Or ignore the detour sign and go over the cliff. But I don't think the detour sign will be ignored.)

 

Brass,

Where do we hike taxes? Even if "the rich" took a bath, we're talking an extra 200 Billion per year? And that doesn't factor in the lost economic growth that comes from higher marginal rates on job creators. You might disagree with that, and I'm sure you do, so lets agree to disagree. Where do we get the revenue from? In terms of taxation? The deficit, right now, is about 1.6 Trillion. With a T.

 

http://www.newsmax.com/Newsfront/congress-failing-americans-coburn/2012/05/02/id/437738

From the article regarding Congress:


“I think we are failing — as an institution we’re failing,” Coburn said. ”Both parties have members who are failing. We’re making decisions that are politically expedient for our position, rather than telling the truth to the American people.”

In his new book, “The Debt Bomb,” Coburn is even tougher, saying that American voters should fire most of their lawmakers who day after day refuse to address the nation’s debt, which he says is “absolutely unsustainable.”

“I think it’s the culture of careerism,” Coburn told Van Susteren. “I don’t mean to demean any of my colleagues.

“But a large portion of them have never done anything but public service — and, so, you know, it’s part of the career path — and so you want to stay on your career path,” he said. “So you do what is politically expedient, rather than what is not expedient. In other words, counter to your best political interests to fix the country.”

 

<img src="http://graphics8.nytimes.com/images/2012/05/01/opinion/050112krugman1/050112krugman1-blog480.jpg">

<img src="http://graphics8.nytimes.com/images/2012/05/01/opinion/050112krugman2/050112krugman2-blog480.jpg">

 

Thanks for posting. There's so much wrong with that, it's mind-boggling. Sold down the river by carpetbaggers, essientially.

 

have you looked at the deficit recently? It's still about the same?

 

Higher taxes and spending cuts are the only thing that will work. ("The only way to eat an elephant is one bite at a time." "To get to Rome, make sure that each step is in that direction." And so on.) There is no magic cure. Anything else is pure ideology, on either side. What do you propose?

As I noted in another thread to you a few minutes ago, remember the rates under Clinton or even Reagan?

 

Of course, unemployment is still about the same.