Rising Deficits Pose Major Threat to Economy: Bernanke

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Rising Deficits Pose Major Threat to Economy: Bernanke

By Jeff Cox

Feb 2 (CNBC) — Rising federal budget deficits are posing a significant threat to the U.S. economy and are likely to cause a crisis if not brought under control, Federal Reserve Chairman Ben Bernanke told Congress Thursday.

Calling the situation “unsustainable,” the central bank leader pointed out that surging health-care costs, along with the high level of government spending used to pull the economy out of recession, are creating fiscal hazard.

“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the House Budget Committee. “Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth.”

At the same time, he also warned Congress not to pull the reins too tightly so as to threaten growth.