Bernanke to Congress: Don't Ignore Fiscal Balance

Ben Bernanke is holding forth in front of the House Budget Committee. It’s a lot of the same old stuff but of some interest was his comments about fiscal discipline (you remember what that is, don’t you?). You wouldn’t want to say that he put a shot across the bow but he did at least reintroduce the concept to the discussion.

Here is a link to his opening remarks and here is part of what he had to say about getting the fiscal house back in order:

Certainly, our economy and financial markets face extraordinary near-term challenges, and strong and timely actions to respond to those challenges are necessary and appropriate. Nevertheless, even 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. Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs. 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 8-1/2 percent of GDP today to 10 percent by 2020 and 12-1/2 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.

Addressing the country’s fiscal problems will require a willingness to make difficult choices. In the end, the fundamental decision that the Congress, the Administration, and the American people must confront is how large a share of the nation’s economic resources to devote to federal government programs, including entitlement programs. Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. 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 budget deficits be well controlled.

Clearly, the Congress and the Administration face formidable near-term challenges that must be addressed. But those near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth.

Translation: if you want a decent economy you have to decide how much money the government plans to spend and take appropriate steps to ensure that you have adequate revenues to support that spending level. The game you’re playing now won’t work for long.

That’s all well and good, but the fellow that can stop all of this dead in its tracks if he thinks it’s gone too far is none other than Ben Bernanke. All he has to do is stop QE and all of the other measures the Fed has been taking to force down interest rates. Force the government to confront the real costs of its spending binge and things will change fast.

Now, that’s not going to happen tomorrow, nor should it. It’s way too early to take the foot off the economic accelerator. Bernanke can, however, start letting the powers that be know he will only play the game for so long. He has the power to force the changes he advocates. We’ll see over time if Congress and the administration heed his warnings, and if they don’t, if he has the courage to act on his convictions.

Comments

[Steve in Gr...:]

Congress to Bernanke: Stop Debasing the Currency.
Pot to Kettle: Stop Being Black

Jun 03 02:10 PM

[dcb:]

says the man who tries to hide asset purchases and won't testify about things.

Jun 03 02:13 PM

[dcb:]

I disagree with this statement.

Now, that’s not going to happen tomorrow, nor should it. It’s way too early to take the foot off the economic accelerator.

Jun 03 02:15 PM

[tunaman4u2:]

He wants congress to cut its spending so HE & the Fed has more to spend... ahh so cute Ben... its obvious bro...

Jun 03 02:57 PM

[4rdvark:]

Some plain speaking from the navigator, finally...

Jun 03 03:27 PM

[James Quinn:]

He has a major set of balls to talk about fiscal policy while he is hiding hundreds of billions in worthless assets on the Fed Balance sheet and printing a trillion dollars. Criminal.

theburningplatform.com...

Jun 03 03:45 PM

[spald_fr:]

OK already. We see you. Use of that swastika is juvenile and offensive to many.
seekingalpha.com/user/...


On Jun 03 03:39 PM JEWS KILLED WIM DUISENBERG wrote:

> .

Jun 03 03:50 PM

[Nick Waddell:]

How is a guy allowed to use a swastika as a logo for more than 20 seconds here?

Jun 03 03:55 PM

[daniel3582:]

This reminds of the scene from "Rounders" where Matt Damon's character chides Edward Norton's character for getting too greedy and "killing" the sheep instead of just "fleecing" them.

Jun 03 04:02 PM

[MarkitWacha:]

I'm in Ben's corner. This is exactly the reason and the primary advantage of the Fed being private. He can bring Congress to terms with REALITY.

Go, Ben, Go!! Tell them NO!!! No Debt No Mo!!!

Poor guy. He's more powerful and more financially intelligent than Obama, and it's clearly making him uncomfortable.

Jun 03 04:23 PM

[Jaime Bece:]

Nice move after handing out money at the corner of every street, or no.. wait... it was only Wall Street!

The US deserves to have its rating downgraded, and Ben knows it.

Jun 03 06:05 PM

[expat in China:]

Ben was a talking head!

He was connected to Geithner's mobile in China and clearly heard the wooping that he was getting. The line in the sand was crossed and fiscal responsibility was demanded resulting in the US to be lonely with negative GDP for some time to come.

The green shoots are eternal poking out of the permafrost of debt.

Jun 03 07:55 PM

[Larry House:]

When has the Congress EVER practiced "fiscal balance"?

Jun 03 08:40 PM

[Market Sniper:]

Come on, Ben! Congress? Fiscal discipline? Shoot across the bow? Too funny for words. The Fed MUST continue to monetize the debt! If they do not, who then needs the Fed? LOL!!! The Treasury just starts issuing the notes!!!Did that briefly during the JFK Presidency..called red notes..now collector's item! Some have even suggested that his presidency was vetoed when he did that as it was an end run around the private central bank known as the Federal Reserve. So, Ben, you gonna refuse? You would lose in a toe-to-toe with Congress. They might just cancel your charter! Go for it Ben. Go for it.

Jun 03 09:39 PM

[Moon Kil Woong:]

Bernake and the fed are always reactive not pro-active. The only reason he mentioned fiscal restraint is in light that he has lost control of long term Treasury note yields. Furthermore, yes there is no need for the Fed, the Treasury can simply float bonds themselves, however, the yield would be much worse than a monopolistic, rate manipulating, political entity that appeases elected officials like the Fed doing it.

The author is right, the Fed can reign in the out of control money supply by shrinking their balance sheet and raising interest rates. But can is not will. Bernake has no will to loose the political favor he has gained by dumping endless truckloads of cash on everything.

Jun 03 11:45 PM

[DONE_SONZ:]

I agree.People betting against this better be careful what they wish for.


On Jun 03 09:39 PM Market Sniper wrote:

> Come on, Ben! Congress? Fiscal discipline? Shoot across the bow?
> Too funny for words. The Fed MUST continue to monetize the debt!
> If they do not, who then needs the Fed? LOL!!! The Treasury just
> starts issuing the notes!!!Did that briefly during the JFK Presidency..called
> red notes..now collector's item! Some have even suggested that his
> presidency was vetoed when he did that as it was an end run around
> the private central bank known as the Federal Reserve. So, Ben, you
> gonna refuse? You would lose in a toe-to-toe with Congress. They
> might just cancel your charter! Go for it Ben. Go for it.

Jun 04 07:08 AM

[DONE_SONZ:]

Agreed.If this happens the market is toast.It's not a perfect world,but the truth is the truth.

On Jun 03 02:15 PM dcb wrote:

> I disagree with this statement.
>
> Now, that’s not going to happen tomorrow, nor should it. It’s way
> too early to take the foot off the economic accelerator.

Jun 04 07:14 AM

[DONE_SONZ:]

"It's way too early to take the foot off the accelerator" is what I'm referring to.

Jun 04 07:19 AM

[DONE_SONZ:]

I'm still not making sense.sorry!I need coffee.Mash the gas is what I'm trying to say.

Jun 04 07:21 AM

[rick12345:]

Ok

1. The Swatzstika did not originate in Nazi Germany, even though it was adopted by them to promote ideological hegemony. It was borne of ancient Sanskrit, possibly even dating back to neolithical times, long before Germany existed.
2. Proper interpretation of Bernanke's comments - In order to pay for this mess, we will eventually need to cut government spending and increase taxes. This means that during our current term in office we will have to postpone any reform to the Medicare system, even though it was a major contingent in the previous campaign and helped us to secure the Democrat vote.

Jun 06 04:05 AM