Today Federal Reserve Chair Ben Bernanke testified before the House Budget Committee. The quote which implies America could become Greece is this:
Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy. Although historical experience and economic theory do not indicate the exact threshold at which the perceived risks associated with the U.S. public debt would increase markedly, we can be sure that, without corrective action, our fiscal trajectory will move the nation ever closer to that point.
Greece? Really? Business Insider calls this plain annoying. The comparison is the wrong country. America really looks like Japan. The dire warning the United States could become like Greece is really about health care costs. Federal outlays for health care are already 5% of GDP and we have apocolyptic projections for meteoric health care costs increases. Here's Bernanke on those:
Of even greater concern is that longer-run projections, based on plausible assumptions about the evolution of the economy and budget under current policies, show the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt to GDP rising rapidly. This dynamic is clearly unsustainable.
These structural fiscal imbalances did not emerge overnight. To a significant extent, they are the result of an aging population and, especially, fast-rising health-care costs, both of which have been predicted for decades. Notably, the Congressional Budget Office projects that net federal outlays for health-care entitlements--which were about 5 percent of GDP in fiscal 2011--could rise to more than 9 percent of GDP by 2035.3 Although we have been warned about such developments for many years, the time when projections become reality is coming closer.
Bernanke is simply throwing meat to the lions, who want nothing better than to cut social safety nets, not reduce overall costs of health care. When it comes to health care costs, legislators are an experience in what people say, what dogs hear. Over and over it is amplified America pays the highest costs for health care. Yet when the elephant in the room comes out, Congress's only desire is to cut benefits to seniors and the poor, not reduce overall prices and efficiency.
One of the most irksome things is watching economically clueless House members try to play gotcha games with Bernanke instead of real questions. Perpetually House committee members try to get Bernanke to agree to their draconian attacks on U.S. social safety nets and other political agendas instead of what works.
Here's what Bernanke said on fixing unsustainable deficits:
To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. Attaining this goal should be a top priority.
Even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery. Fortunately, the two goals of achieving long-term fiscal sustainability and avoiding additional fiscal headwinds for the current recovery are fully compatible--indeed, they are mutually reinforcing. On the one hand, a more robust recovery will lead to lower deficits and debt in coming years. On the other hand, a plan that clearly and credibly puts fiscal policy on a path to sustainability could help keep longer-term interest rates low and improve household and business confidence, thereby supporting improved economic performance today.
Fiscal policymakers can also promote stronger economic performance in the medium term through the careful design of tax policies and spending programs. To the fullest extent possible, our nation's tax and spending policies should increase incentives to work and save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure. Although we cannot expect our economy to grow its way out of our fiscal imbalances, a more productive economy will ease the tradeoffs that we face and increase the likelihood that we leave a healthy economy to our children and grandchildren.
Let's translate into blogger speak. Hey, idiots in Congress, you're not focusing in on what really needs to happen to reduce budget deficits. We need stimulative policies to grow the economy and most importantly, tie those incentives to U.S. citizen workers. Wow, considering the Federal Reserve uses foreign guest workers, maybe they should start with themselves to make sure they are creating jobs for Americans*.
Much of the Q&A is about Republicans trying to accuse the Federal Reserve of stepping into their fiscal policy turf. La de da, what a catch-22 for the Fed. They are blamed for everything it seems yet when they try to do something, gee, they are blamed for that too.
House Budget Committee Chair Paul Ryan was on his pulpit, accusing the Fed of destroying the U.S. dollar, destroying savings and causing overinflated asset prices by keeping interest rates low. Literally the committee accused Bernanke of designing fiscal policy. Gee wiz.
Check out the hearing video, embedded below.
* Some of the H-1B Visas issued to the Federal Reserve are for international economic talent and the salaries listed are reasonable. On the other hand, there are plenty of American web developers who are out of work right now, economists too!