Bernanke: Federal Deficit Is a 'Real and Growing' Economic Threat

Federal Reserve Chairman Ben Bernanke warned Monday that the growing federal deficit could harm the economy. The economy could be hurt if Congress and the White House fail to come up with a plan to curb the nation's huge budget deficits in the coming years, Federal Reserve Chairman Ben Bernanke warned Monday.

Bernanke, in a speech prepared for delivery, reiterated his belief that the government shouldn't raise taxes or slash spending now because the economic recovery is still too fragile.

But failing to bring the deficits under control could endanger the economy later on, he said. Exploding budget deficits can lead to higher interest rates for people buying homes and cars, and for businesses buying equipment or expanding operations. That could crimp Americans' spending and slow economic growth.

"The threat to our economy is real and growing," Bernanke said. "The sooner a plan is established, the longer affected individuals will have to prepare for the necessary changes."

How to Cut the Deficit

The federal government is on track to produce its second-highest deficit ever - $1.3 trillion - for the budget year that ended Sept. 30. That would be slightly below last year's record $1.4 trillion in red ink.

President Barack Obama assembled a commission to tackle the soaring deficit. Its goal: come up with a plan to cut the deficit so that it is no bigger than $550 billion by 2015, an amount equal to about 3% of the total U.S. economy.

The options for slicing the deficit - cutting spending on popular entitlement programs like Social Security and Medicare and raising taxes - will be difficult for the White House and Congress to sell to the American public.

Bernanke steered clear of making recommendations on the best way to reduce the deficits, saying those tough decisions are best left to the nation's elected officials.

Challenges Ahead

Rapidly rising health-care costs and the aging of the U.S. population are among the major forces putting pressure on the deficits in the years ahead, Bernanke said.

"We should not underestimate these fiscal challenges; failing to respond to them would endanger our economic future," Bernanke said in remarks to the annual meeting of the Rhode Island Public Expenditure Council.

At another event earlier in the day, Bernanke defended the government's decision in 2008 to bail out banks, even though the action was unpopular with the American public.

"For what it's worth, it's worked," Bernanke said in a town-hall style meeting with college students in Rhode Island. "It's stabilized the system. The financial system is now much healthier than it was. It's no longer in crisis, and moreover, the money that went into these financial firms is coming back to the taxpayers with interest. So it turns out to have been not only a successful program, but for the most part, a pretty good investment for taxpayers."

Increase your money and finance knowledge from home

Building Credit from Scratch

Start building

View Course »

Intro to Retirement

Get started early planning for your long term future.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Darrell & Donna

Barnanke and Greenspan caused the problems we have today';;They both should close their mouths;they have screwed this country up;now they want to go around talked to college kids who will listento their bull ****;;Time the both took a long vacation away from government6 ;do away with high paid fed workers;;

October 05 2010 at 7:53 PM Report abuse rate up rate down Reply

The Fed IS the problem. Audit and end the Fed. There would be no debt if the Fed did not print money out of thin air to lend to the government. Money is debt. Without this money the governenment would not be able to continue its reckless spending.

October 05 2010 at 5:55 PM Report abuse +2 rate up rate down Reply

What a guy. Banks borrow at zero, purchase treasuries and get 2-3% and give out billions in bonuses and give people on fixed incomes 1% or less on savings. And Ben saved the world

October 05 2010 at 5:51 PM Report abuse +3 rate up rate down Reply

This man is totally stupid and a jerk. Its like this... you have a patient who had a heat attack and is dying. We are trying to save his life, we administer some drugs to get the heart going, and this Idiot is saying he is worried about the side effects of the drug. How dumb is that? Every time we see a good news, a pos...itive move in stock market, this man shows up with his doom and gloom worries. There is nothing we cand do about the side effects of these drugs we need to revive the patient. Someone needs to tell him that. Once the patient is revived and he is back on his feet then we can start addressing the issues about side effects

October 05 2010 at 4:46 PM Report abuse +1 rate up rate down Reply

Let's see, He's concerned with the deficit today....but he's committed (verbally)within the last two weeks that he (The Fed)is ready and willing to initiate Quantitative Easing II (QE2)... up to a trillion dollar purchase of US Treasury Bonds or bad loans from our friends at GNMA or FANNIE MAE. By the way QEII is Gaelic for "let the printing press roll". Conveniently, the FED's debts don't show up on the US Govenment's debt list....just like our friends at Fannie Mae etc. the Fed is technically a non Government entity. He is the last person to listen too!!

October 05 2010 at 4:46 PM Report abuse +6 rate up rate down Reply

How about cutting that useless health care bill that will cost all of us a trillion more? My premiums have skyrocket since that useless piece of garbage was enacted! Is there no end to this robbery? And Democrats want a bigger Gov't? They can't even manage the one they have now!

October 05 2010 at 4:28 PM Report abuse +2 rate up rate down Reply
1 reply to Jetncat's comment

this is why public option was designed for and GOP took it out, if there was a public opotion your premiums would have dropped but GOP made it possible for the insurance to steal our money out of our pocket If GOP and McCain had won in 2008 today There was no American Auto industries We had millions more unemployed because of it, after 7 years we were still waiting for the 2% rich whom they just had permanently given a tax cut worth $800 Billion borrowed from the world to start hiring. We were at war with Iran and Iraq. Dow... was at 2000 Based on Fox News analysts. Teachers, Police, Firemen were all laid off++

October 05 2010 at 5:33 PM Report abuse -2 rate up rate down Reply

How about cutting money to other ingrateful nations? How about cutting congress's salary instead of giving them a raise? What about cutting entitlements for illegal immigrates? I have about 10 items that I would cut BEFORE I cut social security and medicare that we the tax payer paid into. How about those pork barrel shovel ready union jobs? How about the millions $$ congress gives out to study fish swimming up stream? Come one people! This is just another hook line and OUR sinker if we do not put a stop to it!

October 05 2010 at 4:24 PM Report abuse +5 rate up rate down Reply
2 replies to Jetncat's comment

raise taxes

October 05 2010 at 4:47 PM Report abuse -3 rate up rate down Reply

why just cutting expenses we can raise taxes tax rates were over 50% before 1986 and top rate was 90% in 60s so why 36% top rate and all these sacrifices? pay more and get more for it

October 05 2010 at 5:35 PM Report abuse -1 rate up rate down Reply

WOW! The Fed chairman finally figures out what all of America has been saying for 18 months! Deficits do not bring job growth! And it only took him 800 Billion dollars in stimulus to find that out? Great Fed chariman.

October 05 2010 at 4:19 PM Report abuse +4 rate up rate down Reply
1 reply to Jetncat's comment

stimulus worked where have you been?

October 05 2010 at 4:47 PM Report abuse -2 rate up rate down Reply

how do we audit The Fed and then end The Fed...our taxes pay this agency, right?

October 05 2010 at 4:03 PM Report abuse +5 rate up rate down Reply

America spends a trillion on defense not including the war ongoing. We can cut back some there.

October 05 2010 at 3:37 PM Report abuse -1 rate up rate down Reply