Official Congressional budget estimates understate the peril of rising debt, Fed chair Ben Bernanke told the Budget Committee on Capitol Hill on Wednesday.
When the Chairman of the Federal Reserve says our national debt and the out-of-control budget deficits that drive it are unsustainable – it’s time to pay attention.
The Fed, printers of the very fiat funny-money that makes congress giddy when they get to spend it with reckless abandon, has begun to trumpet the horn that as our national debt goes, things are bad, and getting badder [sic].
In his recent prepared remarks to congress Bernanke warned that our nation’s fiscal health has deteriorated appreciably since the onset of the financial crisis and the recession, and he called upon lawmakers to confront the long term fiscal challenges sooner rather than later. This, coming from the man whose banking cartel is solely responsible for all economic ups and downs – his hypocrisy being palpable.
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.
What is most striking about Bernanke’s comments is that it is the Fed in tandem with congress that facilitates the never ending printing of money to float our present desires at the cost of our future. It is akin to the banker loaning us new money to pay for past debts knowing all along we can never repay it and scolding us at every turn. The irony being that the Fed and their fiat money is the root cause of our predicament.
Bernanke went on to explain 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.
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.