Fed Chairman Warns About Deficits, Debt

In his testimony to the House Budget Committee today, Federal Reserve Chairman Benjamin S. Bernanke gave special attention to the need for Congress to control spending, deficits, and debt; and he warned that long-term economic health depends on this. Here are several key quotes from the Fed Chairman.

From Prepared Remarks 

• “The administration recently submitted a proposed budget that projects the Federal deficit to reach about $1.8 trillion this fiscal year before declining to $1.3 trillion in 2010 and roughly $900 billion in 2011. As a consequence of this elevated level of borrowing, the ratio of Federal debt held by the public to nominal GDP is likely to move up from about 40 percent before the onset of the financial crisis to about 70 percent in 2011. These developments would leave the debt-to-GDP ratio at its highest level since the early 1950s, the years following the massive debt buildup during World War II.”

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• “[E]ven as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

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• “The recent projections from the Social Security and Medicare trustees show that, in the absence of programmatic changes, Social Security and Medicare outlays will together increase from about 8½ percent of GDP to 10 percent by 2020 and 12½ percent by 2030. With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely to meet these demands.”

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• “In particular, over the longer term, achieving fiscal sustainability – defined, for example, as a situation in which the ratios of government debt and interest payments to GDP are stable or declining, and tax rates are not so high as to impede economic growth – requires that spending and deficits be well controlled.”

Read the full report here.