Ben Bernanke made an important point while testifying before the House Budget Committee: lawmakers must reduce the federal deficit and return the nation to fiscal sustainability.
The deficit, set to hit $1.8 trillion this year, is not expected to dip under $500 billion per year during the next decade, even under President Obama’s unusually optimistic economic forecast. Chairman Bernanke notes, “With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely.” Put simply, the country is on a fiscally unsustainable path and action must be taken to avoid calamity.
Let’s be clear, this is a spending problem not a revenue problem. Even if government revenue were magically reset to historical levels of 18.4 percent of GDP instead of the expected 15.4 percent we’d still be running a deficit of more than $1.3 trillion this year. The government put itself in this position through massive spending increases, and can only regain sustainability through substantial spending reductions.
Unfortunately, short term stability isn’t the country’s only dilemma. The long-term financial situation is also on an unsustainable course due to uncontrolled entitlement programs. Chairman Bernanke affirms,
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… Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth.”
Congress must take Chairman Bernanke’s counsel. Cut deficits in the short-term and reform entitlements for the long-term.
