July 30, 2014

Bernanke Pans Debt Limit Debate

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

In blunt but appropriate language, Federal Reserve Chairmen Ben Bernanke used a high-profile speech late last week to criticize Washington’s handling of the recent debt limit controversy and to call for a better process for making fiscal decisions.

Speaking  at an annual policy conference in Jackson Hole, Wyoming, Bernanke also reiterated a message that The Concord Coalition and other independent fiscal analysts have long stressed: Substantial, long-term deficit reduction plans can be compatible with short-term efforts to bolster the economic recovery.

“The negotiations that took place over the summer disrupted financial markets and probably the economy as well,” Bernanke said. He cautioned that similar episodes in the future could “seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.”

On the importance of fiscal reform and at least stabilizing federal debt, Bernanke again warned that “without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.”

The Fed chairman called for tax and spending policies that “increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure.”

While we cannot expect economic growth to cure the government’s fiscal problems, he said, “a more productive economy will ease the trade-offs that we face.”