Ber­nanke’s warn­ing

The Washington Times Weekly - - Editorials -

The party con­trol­ling Congress may have changed this month. How­ever, as Fed­eral Re­serve Chair­man Ben Ber­nanke made clear in his in­au­gu­ral ap­pear­ance be­fore the Democrat­con­trolled Se­nate Bud­get Com­mit­tee on Jan. 18, the se­ri­ous fis­cal prob­lems con­fronting Congress and the ad­min­is­tra­tion did not change at all on Nov. 7. Con­sider:

At the end of fis­cal 2006, the fed­eral gov­ern­ment debt held by the pub­lic, which ex­cludes So­cial Se­cu­rity and other trust funds, amounted to 37 per­cent of gross do­mes­tic prod­uct (GDP). Twenty-five years ago, pub­licly held fed­eral debt to­taled 25.8 per­cent of GDP, and five years ago it was 33 per­cent of GDP. That trend has been mov­ing in the wrong di­rec­tion.

Not­with­stand­ing the hor­ren­dous bud­get deficit that have char­ac­ter­ized most of the past quar­ter cen­tury, Mr. Ber­nanke ob­served: “Un­for­tu­nately, we are ex­pe­ri­enc­ing what seems likely to be the calm be­fore the storm” as spend­ing on en­ti­tle­ments (So­cial Se­cu­rity, Medi­care and Med­i­caid) “will be­gin to climb quickly dur­ing the next decade.” In­deed, the first baby boomers will be­gin re­ceiv­ing So­cial Se­cu­rity re­tire­ment ben­e­fits next year, and three years later they will be­come el­i­gi­ble for Medi­care.

Last year, spend­ing on So­cial Se­cu­rity, Medi­care and Med­i­caid rep­re­sented about 40 per­cent of all fed­eral out­lays and roughly 8.5 per­cent of GDP. Ac­cord­ing to pro­jec­tions by the Con­gres­sional Bud­get Of­fice (CBO), spend­ing on those three pro­grams will rise to 10.5 per­cent of GDP by 2015 (less than a decade from now) and to about 15 per­cent of GDP by 2030. To­day there are about five peo­ple be­tween the ages of 20 and 64 for each per­son 65 and older. By 2030 that ra­tio will plunge to three peo­ple be­tween 20 and 64 for each per­son 65 and older. By 2030, CBO projects the fed­eral deficit will approach 9 per­cent of GDP. Last year’s $248 bil­lion deficit was less than 2 per­cent of GDP.

As fu­ture bud­get deficits be­come in­creas­ingly larger when mea­sured as a share of GDP, CBO projects that the level of fed­eral debt held by the pub­lic (ex- pressed as a share of GDP) will soar as well, reach­ing roughly 100 per­cent of GDP by 2030 com­pared to 37 per­cent to­day.

By de­sign, th­ese CBO pro­jec­tions ig­nore the ef­fects such soar­ing deficits would have on the econ­omy, which is as­sumed to grow at a steady, mod­er­ate rate com­men­su­rate with a la­bor force likely to ex­pand much more slowly than in the past. In fact, Mr. Ber­nanke warned, “if gov­ern­ment debt and deficits were ac­tu­ally to grow at the pace en­vi­sioned by the CBO’s sce­nario, the ef­fects on the U.S. econ­omy would be se­vere.”

Mr. Ber­nanke’s con­clu­sion in his tes­ti­mony be­fore the Demo­crat-con­trolled Congress was not dif­fer­ent from the con­clu­sion for­mer Fed Chair­man Alan Greenspan re­peat­edly de­liv­ered in re­cent years to the Repub­li­can-con­trolled Congress. “[I]f early and mean­ing­ful ac­tion is not taken,” Mr. Ber­nanke warned, “the U.S. econ­omy could be se­ri­ously weak­ened, with fu­ture gen­er­a­tions bear­ing much of the cost.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.