Bernanke: "our public finances are...on an unsustainable path"; "failing to respond to them would endanger our economic future"

I keep telling people–don't listen to me say that we are out of money and our long-term fiscal outlook is "untenable"; listen to such noted non-libertarians as the president of the United States and the chairman of the Federal Reserve. Here's Ben Bernanke rocking the gloombah yesterday:

[I]n the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability. [...]

If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace. Moreover, as the national debt grows, so will the associated interest payments, which in turn will lead to further increases in projected deficits. Expectations of large and increasing deficits in the future could inhibit current household and business spending--for example, by reducing confidence in the longer-term prospects for the economy or by increasing uncertainty about future tax burdens and government spending--and thus restrain the recovery. Concerns about the government's long-run fiscal position may also constrain the flexibility of fiscal policy to respond to current economic conditions. [...]

Our fiscal challenges are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors. Two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health-care costs. [...]

In Rhode Island, as in other states, the retirement of state employees, together with continuing increases in health-care costs, will cause public pension and retiree health-care obligations to become increasingly difficult to meet. [...]

[P]rojections by the CBO and others show future budget deficits and debts rising indefinitely, and at increasing rates. To be sure, projections are to some degree only hypothetical exercises. Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, "If something cannot go on forever, it will stop." One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis. [...]

Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks. [...] In the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth. Larger government deficits increase our reliance on foreign lenders, all else being equal, implying that the share of U.S. national income devoted to paying interest to foreign investors will increase over time. Income paid to foreign investors is not available for domestic consumption or investment. And an increasingly large cost of servicing a growing national debt means that the adjustments, when they come, could be sharp and disruptive. [...]

It would be difficult to identify a specific threshold at which federal debt begins to pose more substantial costs and risks to the nation's economy. Perhaps no bright line exists; the costs and risks may grow more or less continuously as the federal debt rises. What we do know, however, is that the threat to our economy is real and growing, which should be sufficient reason for fiscal policymakers to put in place a credible plan for bringing deficits down to sustainable levels over the medium term.

Cheery! Where's the big "but," you ask? It's actually pretty small, but still there:

Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk. Over the medium- and long-term, however, the story is quite different.

Whole suicide note here. Link via the Economic Policy Journal.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • West Texas Boy||

    Well duh, we're screwed if we keep borrowing money and spending more than we bring in.

    But there's an election coming up, so...

  • CatoTheElder||

    Bernanke's just addressing the cheap seats so he can say "I told you so" when austerity becomes inevitable.

    Professor James Galbraith (spawn of JKG) says what Ruling Class really thinks: "The danger posed by the deficit is 'zero'." That is, zero danger to the interests of the Ruling Class.

    "Government does not need money to spend just as a bowling alley does not run out of points."

    This is a brain on Keynesianism. Unfortunately, it's the model used by most of US "leaders", "opinion leaders", and "intellectuals", D & R, even Bernanke.

    Bernanke may be a little more concerned than most because he actually looks at some data, and recognizes than none of the other Keynesian prescriptions seem to be working out very well.

  • shrike||

    "Ruling Class"?

    Quit listening to Rush Limbaugh (King of the Rednecks).

  • cynical||

    Are you suggesting there isn't a small group of people with vastly more personal power than anyone else in society?

  • Paul||

    I missed you, shrike. I'm so glad you're back. I would never know what Rush Limbaugh was doing if it wasn't for you.

  • Rearden||

    I wish I could have gone to his coronation. I never get invited to anything.

  • ||

    This is not the result of a heavily deregulated Wall Street and banking industry, or fighting two wars while cutting taxes...it's President Darkie's fault. God damn you, libruls.

  • ||

    D-. Try harder.

  • lolwut?||

    WTF? Not funny. Try Redstate, TNR, or Hotair.

  • ||

    If you can argue that the deficit did not blow up in the Bush years and that the housing meltdown did not add to the problem, I promise I'll stop fucking your sister.

  • ||

    You can't fuck her until I'm done with her. Oh, and another D-.

  • ||

    Funny, she didn't strike me as the type who'd fuck a sci-fi nerd.
    You can have her. Not keen on libertarian cooties, much less STDs.

  • ||

    TRY HARDER. We could use a good new troll around here, but you're going to have to up your game.

  • Brother Wolf||

    tard, you've got the spirit to be one of the best trolls for a while. But it'd help your cause if you learned what Libertarians actually believe.

  • shrike||

    What? Like Ron Paul and his naive faith in 19th century bank scrip and the archaic gold standard?

    Libertarians are a one trick pony - cut spending (and thats ok) - but its all you get right.

    But even Milton Friedman says you idiots are full of shit.

    And Miltie also warned the Bushpigs - "deficits are future taxes"... so too bad Dickless (deficits don't matter) Cheney wouldn't listen.

  • Mr Whipple||

    http://mises.org/books/inflation_primer_palyi.pdf

  • Old Mexican||

    Re: shrike,

    Like Ron Paul and his naive faith in 19th century bank scrip and the archaic gold standard?

    R.P. has never advocated a return to the so-called "gold standard." He has advocated for allowing people to trade and make contracts with gold - it is NOT the same thing as a "gold standard."

  • shrike||

    bullshit.

    people "trade and make contracts in gold" now.

    Quit defending the moron - he accused the Fed of funding Saddam Hussein in the 80's in House testimony.

    The guy is a kook.

  • Ron L||

    shrike|10.5.10 @ 6:45PM|#
    "bullshit."
    Cite, asshole?

  • Old Mexican||

    Re: Shrike,

    Quit defending the moron - he accused the Fed of funding Saddam Hussein in the 80's in House testimony.

    That's because the Fed did it.

    Regarding the other thing, do you have contrary evidence to what I said, or do you like pulling things out of your ass like that?

  • BakedPenguin||

    Goddamn. They don't seem to learn, do they? Hey dipshit troll: start off slow, like you're a real person with a legitimate point of view that differs from ours, and then slowly take your arguments and make them stupider and stupider. So go from say, Michael Kinsley and slowly move to Joe Biden. Don't go full Biden right off.

  • Brian||

    You never go full Biden.

  • Joe Biden||

    I'm full Biden.

  • Partial Biden||

    I'm Biden my time.

  • Biden's wife||

    I'm biden off more than I can chew.

  • Hungry Traveler||

    Tankatsu
    --------
    2 pork cutlets, 1/2--3/4 inch thick, fat trimmed
    1 egg
    1/4 cup flour
    1/2 cup panko
    1/2--1 tsp salt
    oil

    Bring the pork to room temperature.

    Mix flour and salt, and sprinkle over the cutlets (both sides).

    Fill a heavy pan with approx 1/2 inch of oil, start heating.

    Beat the egg in a broad bowl. Dip each cutlet in egg and then in panko to cover thoroughly.

    When the oil is popping hot, but before it smokes, place both cutlets in the oil for 2--3 minutes until the panko turns golden brown. Turn and again, wait 2--3 minutes to develop good color.

    Remove pork from the oil and place on a rack to drip, or pat dry with a clean towel.

    Cut pork into thin strips suitable for chopsticks.

    Serve with rice and shredded cabbage, or with curry, or indeed almost anything else in the Japanese repertoire.

  • ||

    DERP

  • AlmightyJB||

    try pounding your pork first.

  • Old Mexican||

    Re: Libertardian,

    This is not the result of a heavily deregulated Wall Street and banking industry[...]

    "Heavily deregulated"? Compared to what? Was the Federal Register downsized while I was sleeping or something?

    it's President Darkie's fault.

    "Darkie"? You watched "Force Ten From Navarone" too many times, bro.

  • tafurs delight||

    aw, cut Libertardian some slack, he's obviously just suffering some nasty side effects from his involvement as guinea pig for the Drug Effectiveness Review Project (DERP)...& c'mon, in Force Ten it was "Blackie"..."You bleed red blood, eh Blackie?"...

  • Old Mexican||

    Yeah, you're right - the Chetnik said "Blackie." I had forgoten.

  • tafurs delight||

    lol, it's probably i who have seen that movie too many times...but hey, when one sees an opportunity to get all pedantic over trivia, well, one can't just stand about like a duck in thunder...

  • Brett L||

    If you can't identify a specific deficit threshold at which it would be dangerous, wouldn't zero be a safer place than historic highs?

  • ||

    tl;dr.

    Over the medium- and long-term, however, the story is quite different.

    Bullshit. Over the medium-term, rollover risk is likely to swamp revenue gains from an (anemically) recovering economy.

    And that rollover risk is going to be a bitch. We are already seeing devaluation-induced cost-push inflation; as Ben devalues the dollar, commodity prices go up, pushing inflation into our economy.

    Sooner or later, that inflation is going to show up in interest rates. Because Ben and Li'l Timmy have been shortening up the maturity on Treasuries, those Treasuries are going to roll over at higher interest rates. Debt service will go up, feeding into the vicious cycle.

  • Pip||

    "shortening up the maturity"

    Speaking of shortening up the maturity, where the fuck did that Libertardian faggot come from?

  • robc||

    Dont know, but it took him less than a single business day to make it into my incif file.

  • jasno||

    incif? Wow, thanks for the tip!

  • ||

    INCIF is for wimps, commies, and people with activated charcoal underpants.

  • ||

    We'll turn off this spout
    In the long term
    Bet your bottom dollar
    That in the long term,
    There'll be savings!

    Just thinkin' about
    The long term
    Clears away the Tea Partiers
    And the deficit
    'Til there's none!

    When they ask why the budget must stay
    So gray,
    And scary,
    I just stick up my chin,
    And grin,
    And say,
    Oh!

    We'll turn off this spout
    In the long term
    So ya gotta keep spending
    'Til the long term
    Come what may

    The long term, the long term!
    We'll save in!
    The long-term!
    But right now, let's spend away....

  • Virginia||

    So in the near-term we keep borrowing, but in the long-term we cut back. Got it, thanks.

    But seriously, after it all comes tumbling down will there still be police to enforce the "no-chickens" ordinance in various urban areas?

  • ||

    Just one more bottle of quantitative easing and then I quit. I mean it this time.

  • Warty||

    I can't quit shooting this heroin right now, because I'm really tired right now and I don't want to get sick. But pretty soon I'll stop.

  • T||

    So even Bernanke admits we're broke as shit and headed for the crash? Damn. Things must be worse than I thought.

  • Rich||

    There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices.

    No shit. Exactly what *are* these decisions and sacrifices?

  • ||

    No shit. Exactly what *are* these decisions and sacrifices?


    The decision is to sacrifice us, the unwashed masses.

  • .||

    Of course! That's been the standard decision throughout all history.

  • Mr Whipple||

    So, we can't inflate our way out of debt?

    Fuck me.

  • ||

    So, we can't inflate our way out of debt?

    The shorter the maturity on your debt, the harder it is to inflate your way out of it, because when it rolls over, it rolls over at the rate of inflation plus a risk premium.

    Our Treasuries have very short maturities for sovereign debt. I thik the average is down to around 5 years. Our Masters have been shortening them up to take advantage of low short-term rates.

    Typical short-term thinking on their part. Thay have traded pretty balance sheets and income statements today for brutal rollover risk tomorrow.

  • Mr Whipple||

    *sarcasm*, sorry.

  • shrike||

    Why don't you take the other side of the trade then, hotshot?

    Dean - I have posted here 2-3 years and have not seen you correct once.

  • Mr. Chartreuse||

    A shrike prediction:
    shrike|3.25.09 @ 5:47PM|#

    And I am double short gold (dzz) - the goldbugs/Fed conspiracy theorists will take it in the shitter.

    Gold around 950-1000 in March 2009
    Gold around 1300 now.

  • shrike||

    Good find. I have been long equities and short gold since the Obama Supervisory Capital Assessment Plan that rocketed equities up since March 09.

    +200 and -30 is in my favor.

  • Ron L||

    So you lost money on your claim, and now you move the goal posts by claiming you made money elsewhere?
    Can we guess the corpse will be found 'near a body of water'?

  • shrike||

    Oh fuck you.

    I have a long history of pro-Fed activism here and elsewhere.

    Goldbugs are Bronze Age relics - at least catch up to the Medicis you reactionary jackass.

  • West Texas Boy||

    you reactionary jackass

    Truth be told, that's actually a pretty good comeback. Proper use of the term and everything.

  • Ron L||

    shrike|10.5.10 @ 9:41PM|#
    "Oh fuck you."

    Nope. Fuck you for such a transparent bull-shit claim.

  • Mr. Chartreuse||

    Well at least it worked out in some way, Shrike. You did much better than my "bet" on Sirius (Talk about stupid).

  • X||

    Bernanke is my shepherd; I shall not want.
    He maketh me to lie down in greenbacks.
    He leadeth me beside the still economic waters.
    He inflatheth my dollar.
    He leadeth me in the path of fiscal righteousness in His name.

    Yea, though I walk through the valley of the shadow of bankruptcy,
    I will fear no destitution: for thou art with me.
    Thy prime rates and thy T-Notes, they comfort me.
    Thou preparest a table before me in the presence of my Chinese, Saudi, and Japanese enemies.
    Thou anointest my head with snake oil; my accounts runneth over.

    Surely solvency and low interest rates shall follow me all the days of my life,
    and I will dwell in the House of the Fed forever.

  • shrike||

    Thus spake the fucking idiot goldbug.

    Enjoy it now - the bubble will pop when the FF rate increases.

  • Ron L||

    shrike|10.5.10 @ 8:01PM|#
    "Thus spake the fucking idiot goldbug.
    Enjoy it now - the bubble will pop when the FF rate increases."

    Oh, please tell us, asshole, when this will happen!
    Or is the corpse to be found 'near a body of water'?
    Brain-deads somehow think that 'predictions' without time limits actually mean something. But then, brain-deads have dead brains.

  • Old Mexican||

    Re: Shrike,

    Enjoy it now - the [gold] bubble will pop when the FF rate increases.

    You really think there's a gold bubble?

  • Democratic Line||

    All I hear is bar-bar bar-bar-bar.

  • Old Mexican||

    "Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks."

    Translation: "My printing press is getting tired! Slow down with da spending, bro!"

  • Paul Krugman||

    You're just not hitting it hard enough!

  • Keynsian||

    Late breaking news: Japan lowers interest rates to nearly 0%.

    Riddle: how do you stimulate an economy when interest rates are at 0%?

  • jasno||

    Midget porn?

  • Japan||

    Mandatory tentacle porn.

  • Mr Whipple||

    Drop money from a helicopter?

  • ||

    You've never heard of negative numbers?

  • SIV||

    One of the many innovations of Islamic civilization...

    ... or so I've been told.

  • ||

  • Paul||

    The decision underscores growing worries about the Japanese economy, which is being battered by a strong yen and persistently falling prices.

    It also suggests Japan is taking a page from U.S. Federal Reserve Chairman Ben Bernanke's playbook.

    Persistently falling prices. Strange, considering the justice department has said explicitly that part of its mission is to ensure "lower consumer prices".

    They said this was in relation to their "Antitrust" investigation of American Express.

    Yet here governments are attempting to boost consumer prices. Methinks that nations attempting to micromanage their economies may not know what they're doing.

  • T.L. Davis||

    I wrote a post about just this sort of thing this morning:
    http://www.washingtonreb.com/2.....or-beirut/

  • Suki||

    Matt,

    Watching your California Civil War on NetFlix. Too bad the pot farmers could not warn the North about the incoming invasion.

  • ||

    Duh! (It took him this long to realize this?)

  • LarryA||

    It would be difficult to identify a specific threshold at which federal debt begins to pose more substantial costs and risks to the nation's economy.

    We may not be able to identify the particular point, but I’m pretty sure I see it in the rearview mirror.

    What we do know, however, is that the threat to our economy is real and growing, which should be sufficient reason for fiscal policymakers to put in place a credible plan for bringing deficits down to sustainable levels over the medium term.

    Yeah. We need a committee. And a Czar.

    Mañana,
    Mañana,
    Mañana is good enough for me.

  • Tom||

    According to wikipedia, Bernanke is a libertarian.

    Ain't life grand?

  • Mr Whipple||

    EDIT EDIT EDIT!

  • ||

    Wikipedia is run by so-called "liberals" and so-called "liberals" are always trying to change the meaning of commonly used words and phrases for their benefit. I have noticed on many occasions so-called "liberals" applying the term "libertarian" to themselves.

  • intrepid demise||

    Did anyone else notice the "in a year or two" comment? Is another presidential election (and probably a presidential appointment change or two) in "a year or two"? Seems like he's covering his ass (as well as Obama's).

    If the economy doesn't turn around before then, he can say he said so, and that it's not the current admin's fault, and that we always needed more time. If it DOES turn around, we'll have "surpassed expectations." Nice fucking save, Bernanke, you jerk.

  • دردشة||

    thanks

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement