Ben Bernanke sees that the present deficit is not sustainable. He has repeatedly warning Congress that a crisis is brewing if Congress will not call a halt to the deficit. Congress of course kicks the can.
It is interesting that CNN, an Establishment media outlet, has called attention to Bernanke’s warning. Consider this.
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.
This is an accurate assessment of Bernanke’s position. He is fully aware that the Federal Reserve will have to intervene to buy most of the government’s new debt if this continues. This will lead to mass inflation. If Congress does not face the grim reality of the government’s debt, the Federal Reserve will either inflate or refuse to inflate. If it refuses to inflate, interest rates will soar, and there will be another major recession.
Here are Bernanke’s words.
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.
He is not fooling around.
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.
CNN concludes: “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 accurate.
There is growing optimism today that the worst is behind us. It isn’t. A brick wall is in front of us. It was built by Congress.