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Testimony from Chairman Bernanke

Posted by WARREN MOSLER on February 23rd, 2011

“If government debt and deficits were actually to grow at the pace envisioned, the economic and financial effects would be severe,” Federal Reserve Chairman Ben S. Bernanke told the House Budget Committee Feb. 9. “Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on U.S. output, incomes, and standards of living.”

12 Responses to “Testimony from Chairman Bernanke”

  1. beowulf Says:

    “Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners…”

    So he’s predicting simultaneous savings deficits in govt (“sustained borrowing), private (“drain funds away”) and foreign sectors (“increase our debt”)? Oh boy!
    Maybe Ben’s working too hard and should start phoning it in from the beach.

    In other news, Goldman issued a report estimating that, spending cuts passed by the House of Representatives last week would be a drag on the economy, cutting economic growth by about two percent of GDP.
    http://blogs.abcnews.com/thenote/2011/02/goldman-sachs-house-spending-cuts-will-hurt-economic-growth.html

    Reply

    JKH Reply:

    haven’t you heard?

    its the “new normal”

    looking for surpluses on Mars

    Reply

  2. Unforgiven Says:

    Go, Randy go!

    http://www.newdeal20.org/2011/02/22/the-moral-imperative-for-deficit-cutting-36590/

    Reply

  3. Tim Says:

    What is the motivation to make such a statement that he probably appreciates is not accurate?

    Look forward to all comments.

    -Tim

    Reply

    danw Reply:

    @ Tim

    Perhaps he is scared.

    The ‘herd’ is moving toward a stampede. The ‘herd’ is on the move around the world. Extremism is on the rise. Bernanke is, after all, just a man. As the revolutionary and angry rhetoric increases in intensity, I expect that the Chairman is feeling afraid…for himself, his family, etc. I worry too.

    Reply

  4. mike norman Says:

    He has totally drunk the Kool Aid!

    Reply

    LetsGetItDone Reply:

    Judging from the contradictions in his predictions it sounds like he’s drunk the LSD.

    Reply

  5. Kristjan Says:

    Like James Galbraith recently put It:

    “What should we ask the deficit hawks?

    You might ask, What is supposed to be the economic benefit of a policy that reduces budget deficits? Nobody can say. Nobody tries to explain this. Behind this, there’s some idea that at the present, that a large budget deficit is unsustainable. Nobody defines that term. It gets repeated a lot, but it is never defined in a systematic way.

    As best I can see, there is fear that somehow the capital markets will withdraw funding to the United States government. People who think that do not understand how capital markets work. They have no response when you point out the capital markets are not worrying about the deficit, because if they were, they would not be lending to the United States as they keep doing and have been doing consistently since the crisis.”

    Well It’s not true “lending”, they need to understand that.

    Reply

  6. LetsGetItDone Says:

    You might ask, What is supposed to be the economic benefit of a policy that reduces budget deficits? Nobody can say. Nobody tries to explain this. . . .

    I think that the deficit hawks do explain this. It’s just that their explanations aren’t good ones. One thing they say is that if we reduce budget deficits and eventually eliminate them, then we will not pass on “a crushing burden” to our grandchildren. Another thing they say is that if we reduce the debt-to-GDP ratio then the bond markets will not raise interest rates on Tsys. Still another thing they say, is that, like any household, we will run out of money if we keep using that national credit card. Many of these and other myths are dispelled in the Warren’s 7 DIFs book.

    A recent summary post listing the various fairy tales told by the hawks is here: http://www.correntewire.com/simplest_and_best_way_out

    The blockquoted list of myths has links to critical posts for each one.

    Behind this, there’s some idea that at the present, that a large budget deficit is unsustainable. Nobody defines that term. It gets repeated a lot, but it is never defined in a systematic way.

    And here are some pieces on fiscal sustainability that explain why debts, deficits, and debt-to-GDP ratios have nothing to do with it:

    http://www.correntewire.com/fiscal_sustainability_and_american_future

    http://www.correntewire.com/talking_grandma_about_fiscal_sustainability

    http://www.correntewire.com/what_fiscal_sustainability

    http://www.correntewire.com/fiscal_solvency_sustainability_and_confusion

    http://www.correntewire.com/modern_money_theory_social_sustainability_and_nick

    See the transcripts from the Fiscal Sustainability Teach-In Counter-Conference:

    http://www.correntewire.com/mmtfiscal_sustainability_conference

    and also Bill Mitchell’s series on the subject:

    http://bilbo.economicoutlook.net/blog/?p=2905

    http://bilbo.economicoutlook.net/blog/?p=2916

    http://bilbo.economicoutlook.net/blog/?p=2943

    Reply

  7. Greg Marquez Says:

    I wondered if it wasn’t a response to the threat by congress not to increase the debt ceiling. Perhaps in order for them to go along he had to act like the deficit was important.

    Reply

  8. Mike V Says:

    Greg, that’s a possibility. Good point.

    I wish Krugman would read your book and start pushing these ideas out there. The guy is a hack, but has a strong following. Galbraith and others need to keep speaking out against these myths. Flat earth lunatics.

    Reply

  9. Panayotis Says:

    Once an orthodox economist always one! What do you expect of Bernanke? Those who read his theoretical papers know where he stands!

    Reply

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