Ben Bernanke is holding forth in front of the House Budget Committee. It’s a lot of the same old stuff but of some interest was his comments about fiscal discipline (you remember what that is don’t you?). You wouldn’t want to say that he put a shot across the bow but he did at least reintroduce the concept to the discussion.
Here is a link to his opening remarks and here is part of what he had to say about getting the fiscal house back in order:
Certainly, our economy and financial markets face extraordinary near-term challenges, and strong and timely actions to respond to those challenges are necessary and appropriate. Nevertheless, even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. 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. The recent projections from the Social Security and Medicare trustees show that, in the absence of programmatic changes, Social Security and Medicare outlays will together increase from about 8-1/2 percent of GDP today to 10 percent by 2020 and 12-1/2 percent by 2030. With the ratio of debt to GDP already elevated, we will not be able to continue borrowing indefinitely to meet these demands.
Addressing the country’s fiscal problems will require a willingness to make difficult choices. In the end, the fundamental decision that the Congress, the Administration, and the American people must confront is how large a share of the nation’s economic resources to devote to federal government programs, including entitlement programs. Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. In particular, over the longer term, achieving fiscal sustainability–defined, for example, as a situation in which the ratios of government debt and interest payments to GDP are stable or declining, and tax rates are not so high as to impede economic growth–requires that spending and budget deficits be well controlled.
Clearly, the Congress and the Administration face formidable near-term challenges that must be addressed. But those near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth.
Translation: if you want a decent economy you have to decide how much money the government plans to spend and take appropriate steps to ensure that you have adequate revenues to support that spending level. The game you’re playing now won’t work for long.
That’s all well and good but the fellow that can stop all of this dead in its tracks if he thinks it’s gone too far is none other than Ben Bernanke. All he has to do is stop QE and all of the other measures the Fed has been taking to force down interest rates. Force the government to confront the real costs of its spending binge and things will change fast.
Now, that’s not going to happen tomorrow nor should it. It’s way too early to take the foot off the economic accelerator. Bernanke can, however, start letting the powers that be know he will only play the game for so long. He has the power to force the changes he advocates. We’ll see over time if Congress and the administration heed his warnings and if they don’t if he has the courage to act on his convictions.