Politics

Bernanke headlines a day of grim warnings about the nation’s fiscal standing

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      Jon Ward

      Jon Ward covers the White House and national politics for The Daily Caller. He covered the last two years of George W. Bush's presidency and the first year of Barack Obama's presidency for The Washington Times. Prior to moving to national politics, Jon worked for the Times' city desk and bureaus in Virginia and Maryland, covering local news and politics, including the D.C. sniper shootings and subsequent trial, before moving to state politics in Maryland. He and his wife have two children and live on Capitol Hill. || <a href="mailto:jw@dailycaller.com">Email Jon</a>

If Washington had grown fuzzy about the razor’s edge the U.S. economy is currently balanced on, it got a bracing reminder Thursday.

Federal Reserve Chairman Ben Bernanke warned that the nation’s projected deficit and debt levels “cannot actually happen” because creditors would refuse, at some future point, to finance the government’s spending.

“By definition, the unsustainable trajectories of deficits and debt that the [Congressional Budget Office] outlines cannot actually happen, because creditors would never be willing to lend to a government whose debt, relative to national income, is rising without limit,” Bernanke said at the National Press Club.

The national debt is currently about 60 percent of the economy, or Gross Domestic Product, he said, adding that it is projected to reach 90 percent of GDP by 2020 and 150 percent of GDP by 2030.

But Bernanke’s citation of $9.5 trillion in national debt didn’t include the $4.6 trillion owed by the government to trust funds for things such as Social Security and Medicare, which have paid out cash to the Treasury in exchange for promisory notes. The full national debt – when both forms of debt are included – is already just under 100 percent of GDP, which is currently around $14.6 trillion.

Bernanke quoted economist Herbert Stein as saying, “If something can’t go on forever, it will stop.”

The audience at the Press Club laughed. But Bernanke’s point echoed mainly because of its absurdity.

The Fed chairman once again warned that if Congress does not act soon to cut spending or increase revenues, or some mix of the two, the U.S. economy will be forced by crisis to correct.

“One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point,” he said.

Bernanke did not give a prediction of when he thought the U.S. could experience a debt crisis similar to the ones that have shaken Europe over the past year. Republicans and some Democrats fear a crisis could come at any point given the right mix of circumstances, and will happen for sure in the next few years. President Obama has shown far less concern about the near term and has said he is focused on the mid- to long-term future.

As for the looming fight between Obama and Republicans over whether to raise the government debt ceiling from its current $14.3 trillion mark, Bernanke warned lawmakers against playing a game of chicken with the issue.

“I would very much urge Congress not to focus on the debt limit as being the bargaining chip in this discussion, but rather to address directly the spending and tax issues that we all have to deal with if we’re going to make progress on this fiscal situation,” he said.

But Bernanke also appeared to give some credence to the argument put forward by Republicans such as Sen. Pat Toomey of Pennsylvania, who say that hitting the debt ceiling will not mean immediate default on the government’s debts.

“Under current law, if the debt limit is not extended, for a time, the Treasury has various resources that it can use to make payments on our national debt,” he said.

But Bernanke’s emphasis was clearly on the need to handle the debt ceiling with extreme caution.

“Beyond a certain point, [the government] would not have those resources and the United States could conceivably — I think this is very remote, but it’s not something you want to play around with — the United States would be forced into a position of defaulting on its debt,” he said. “And the implications of that for our financial system, for our fiscal policy, for our economy would be catastrophic.”

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  • kingfish

    I am SO SICK of this JERK! The commission just told us that all those BAILOUTS were unnecessary, which all the tea partiers and BERNANKE already knew. The TAXPAYERS’ money was sent to his buddies on wall street and it’s now located in their personal off-shore accounts, along with huge sums for the Clintons, Bushes, and their puppet Obama.

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  • http://www.facebook.com/people/Steven-Ryan/546948764 Steven Ryan

    Why has Bernacky( as in wacky) not been fired when is some one in congress going to get rid of him through a demand to the president , this guy is either a lier or crazy or both.. People are being killed around the world and we will follow if we let this nut continue..

  • cghartman

    Historically, default or near default on debt has had catastrophic effects on several nations, but this is unprecedented in the U.S. It’s been said that if the U.S. sneezes, the world catches a cold. But if we default on debt, it will make the Black Death of the Middle Ages look like a sniffle. If our bond rating goes through the floor, no one will buy our debt (look what’s happening in Europe right now), which is the way we finance our government – including social security and medicare payments. Interest to pay on the existing debt will spiral out of control and the dollar will collapse as the Ruble did in Russia in 1998. Nations around the world like China have their economic fortunes tied up in our Treasury instruments and their integrity. If we lose this, we stand to lose everything. I have no illusions that the debt ceiling will be elevated.

  • Two Elks

    Remember this Mr. Bernanke. YOU played a huge part in getting us in the finanical mess we are in today. It appears the GOP is not going to honor the wishes of the voters that elected them and actually DO something to stop the bleeding of red ink. We know all roads lead to Goldman Sachs and we are watching !

  • junkmaninohio

    And who exactly is responsible for this economic madness? Politicians. Watching Congress and the White House march toward certain destruction is like watching those people from Okinawa willingly throw themselves off a cliff to certain death. Insanity is the new norm with Obama and the Democrats.

  • TellTheTruth

    “Under current law, if the debt limit is not extended, for a time, the Treasury has various resources that it can use to make payments on our national debt,” he said.

    What? Print more money and wait til the house of cards implodes? Yep….that’ll work!