Tuesday, May 31, 2011
Use of debt limit as bargaining chip risky: Bernanke
From The Hindu
Economists are concerned that the U.S. debt ceiling now stands at $14.29 trillion, could be breached yet again later this month
The use of the U.S.' constitutionally-mandated debt ceiling as a political bargaining chip could risk further worsening the country's deficit or even lead to another meltdown in the U.S. economy, the head of the U.S. central bank, Federal Reserve Chairman Ben Bernanke warned this week.
Speaking before the Senate Committee on Banking, Housing, and Urban Affairs, Mr. Bernanke said, “Using the debt limit as a bargaining chip is quite risky.” His comments came in the wake of a series tussles over the U.S.' debt limit between Democrats, who control the Senate and the White House, and Republicans, who control the House of Representatives.
While the U.S. came perilously close to a federal government shutdown in April, owing to a stalemate over negotiations on increasing that limit, an eleventh-hour bipartisan deal was reached, averting the crisis.
However, economists are concerned that the U.S. debt ceiling currently stands at $14.29 trillion, and could be breached yet again later this month. In this context Republicans led by House Speaker John Boehner and Senate Minority Leader Mitch McConnell have said they would not agree to raising the debt limit unless Democrats conceded to major spending cuts to major mandatory expenditure programmes. Yet at his Senate testimony Mr. Bernanke cautioned, “It is a risky approach not to raise the debt limit in a reasonable time... At minimum the cost will be an increase in interest rates that will actually worsen our deficit”. He also indicated that more severe consequences could follow, arguing, “The worst outcome would be one in which the financial system was again destabilised... which of course would have extremely dire consequences for the U.S. economy.
Yet even as Mr. Bernanke addressed the Senate Committee, Mr. McConnell reiterated the Republican position, saying, “The things I'm talking about have already been studied to death. We don't need any more hearings... we know what the options are. The only question remaining is what will we pick up and agree to on a bipartisan basis”.
While President Barack Obama and his Democratic colleagues have agreed to numerous cuts in discretionary expenditure, they have thus far been reluctant to make sweeping cuts in three of the largest components of public expenditure – Medicare, Medicaid and Social Security.
Along with job creation and the economic recovery, curtailing the explosive growth of debt is likely to be one of the highest policy priorities as the November 2012 presidential elections approach.
Economists are concerned that the U.S. debt ceiling now stands at $14.29 trillion, could be breached yet again later this month
The use of the U.S.' constitutionally-mandated debt ceiling as a political bargaining chip could risk further worsening the country's deficit or even lead to another meltdown in the U.S. economy, the head of the U.S. central bank, Federal Reserve Chairman Ben Bernanke warned this week.
Speaking before the Senate Committee on Banking, Housing, and Urban Affairs, Mr. Bernanke said, “Using the debt limit as a bargaining chip is quite risky.” His comments came in the wake of a series tussles over the U.S.' debt limit between Democrats, who control the Senate and the White House, and Republicans, who control the House of Representatives.
While the U.S. came perilously close to a federal government shutdown in April, owing to a stalemate over negotiations on increasing that limit, an eleventh-hour bipartisan deal was reached, averting the crisis.
However, economists are concerned that the U.S. debt ceiling currently stands at $14.29 trillion, and could be breached yet again later this month. In this context Republicans led by House Speaker John Boehner and Senate Minority Leader Mitch McConnell have said they would not agree to raising the debt limit unless Democrats conceded to major spending cuts to major mandatory expenditure programmes. Yet at his Senate testimony Mr. Bernanke cautioned, “It is a risky approach not to raise the debt limit in a reasonable time... At minimum the cost will be an increase in interest rates that will actually worsen our deficit”. He also indicated that more severe consequences could follow, arguing, “The worst outcome would be one in which the financial system was again destabilised... which of course would have extremely dire consequences for the U.S. economy.
Yet even as Mr. Bernanke addressed the Senate Committee, Mr. McConnell reiterated the Republican position, saying, “The things I'm talking about have already been studied to death. We don't need any more hearings... we know what the options are. The only question remaining is what will we pick up and agree to on a bipartisan basis”.
While President Barack Obama and his Democratic colleagues have agreed to numerous cuts in discretionary expenditure, they have thus far been reluctant to make sweeping cuts in three of the largest components of public expenditure – Medicare, Medicaid and Social Security.
Along with job creation and the economic recovery, curtailing the explosive growth of debt is likely to be one of the highest policy priorities as the November 2012 presidential elections approach.
Labels: Ben Bernanke, Federal Reserve, U.S. economy
# posted by Narayan Lakshman @ 4:46 PM 
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