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Bernanke Freaks Out About Obama's Spending and Debt Plans
Posted Jun 04, 2009 04:17pm EDT by Henry Blodget in Investing, Recession, BankingFrom The Business Insider, June 4, 2009:
Ben Bernanke's language yesterday on the future of the economy and the risks of our ballooning debt was startlingly frank coming from a Fed Chairman.
Specifically, Bernanke warned that the recovery is likely to be weak and that Obama and Congress need to get spending under control or the interest payments will start to destroy us.
He agreed that the size of the deficit is contributing to rising interest rates (very startling point, especially in light of Treasury's happy chirps that rates are rising because the economy is recovering.) He also cast doubt on the effectiveness of the stimulus programs.
Most importantly, Bernanke also raised concern about our impending debt-to-GDP ratio of 70%, which is well below the Obama administration's (probably optimistic) forecast of 100% for the next decade.
As a consequence of this elevated level of borrowing, the ratio of federal debt held by the public to nominal GDP is likely to move up from about 40 percent before the onset of the financial crisis to about 70 percent in 2011. These developments would leave the debt-to-GDP ratio at its highest level since the early 1950s, the years following the massive debt buildup during World War II.
Here's how this 70% compares to the ratio projected by Obama's OMB:
In the past several weeks, John Taylor, Niall Ferguson, John Mauldin and others (see links below) have clanged alarm bells about the size of our deficit. Today, PIMCO's Mohammed El-Erian joins this chorus:
Mr Bernanke...[uses] strong words, and appropriately so given the worrisome fiscal outlook facing the US. By necessity, Mr Bernanke will increasingly be in the business of countering monetisation and inflation concerns.
Indeed, the markets have already fired a couple of clear warning shots in the last couple of weeks, as illustrated by recent moves in US bonds and the dollar.
The chairman’s challenges on this count are neither easy nor amenable to quick solutions. Moreover, as markets increasingly look into the underlying factors, as inevitably they will, they will recognise the difficulty that the government faces in credibly committing to the needed primary fiscal adjustment in the absence of high economic growth.
The bottom line is that we should come away from Mr Bernanke’s testimony with at least two conclusions: the chairman seems more cautious about the growth outlook when compared with other recent public statements; and he wants to push fiscal sustainability issues clearly away from the Fed’s domain and back where they belong, with Congress and the administration.
See also from The Business Insider:
Our Exploding Deficit Will Kill The Economy
Niall Ferguson: US Borrowing Will Be Devastating
Mr Pux - Thursday June 04, 2009 05:00PM EDT
Our goverment is leading us to disaster... cut the damn spending..!
Carlos G - Thursday June 04, 2009 05:01PM EDT
I am glad someone besides me is freaking out.
monkeyfurball - Thursday June 04, 2009 05:01PM EDT
Bernanke isn't the problem here------Obama and his obamcrats are the problem. They will give you $300 oil in a couple years and $25 cheezeburgers at McDon's. Not to mention a national sales tax on top of the income tax which they will also raise rates on.
Verona - Thursday June 04, 2009 05:02PM EDT
you people jesus to get this thing out this mess
Ryan - Thursday June 04, 2009 05:03PM EDT
Check out a movie called the Obama Deception on YouTube or prisonplanet.com. The answers are all revealed and you'll see Bernanke as the criminal he really is.
Carlos G - Thursday June 04, 2009 05:03PM EDT
Bush has got to stop spending like a drunken sailor. We are seeing a debt that the world has never seen and he is still spending. Oh wait a minute, Obama Hussein is President? Never Mind.
Yahoo! Finance User - Thursday June 04, 2009 05:05PM EDT
Need MORE Billions of $$ to ACORN to stimulate the job market... Everybody to blame but the chosen one, Obama....quit bitchin and JUST PRINT MORE MONEY.... Unemployment is DOWN.... obama is creating jobs.. (wink-wink)...What? these 'tingles up your legs' obama lovers are so blinded... WHAT THE HELL???? CLEAN UP YOUR MOUTH LADY
Andy - Thursday June 04, 2009 05:07PM EDT
Bernanke is being transparent. He is a frank guy that is his whole goal. TechTicker is freaking out -- trying to make a mountain out of a molehill. That is TechTicker's whole goal -- to exaggerate headlines so that people will watch and read their exaggerations. The US government is going to make a lot of money; they own many of the big global companies. JPM, GS, AIG, Morgan Stanley, US Trust, M&T, Wells Fargo, etc, etc all want to pay money back to the US -- the US has no need for it at this point.
Yahoo! Finance User - Thursday June 04, 2009 05:08PM EDT
What evolves????? get ready boys and girls... HUGE MASSIVE TAX INCREASES ARE COMING.. VAT... check.... INTERNET TAX.. check.. it's comin.. need to pay for our FREE national health care...... OBAMA DULLARDS ARE BLIND..... obama creating 560K job losses per month.. GO OBAMA GO
Eric - Thursday June 04, 2009 05:08PM EDT
What a mess, sounds like more finger pointing asusual!
JR - Thursday June 04, 2009 05:12PM EDT
Tim Geithner going to China to ask China to buy our Government bonds reminds me of the time under Jimmy Carter's Presidency when Paul Volcker went to talk to European Central Bankers after he became Federal Reserve Chairman. Volcker came back here and started raising interest rates significantly to save the dollar. If China won't support our economy, Obama and Pelosi will have no choice but to cut back on government spending or we will enter a period of very bad stagflation.
Yahoo! Finance User - Thursday June 04, 2009 05:13PM EDT
obama is smooth.. he's socializing america... the dullards can't see it, they are so 'TINGLED UP' all the time.. obama can do no wrong.. the moose wife of his hates America too.. MOOOO...so bitter with such hate and a constant chip on her shoulder.. Obama is getting even with all of you non-muslims now... tax increases , massive hyper inflation....obama is a POS
J. R. - Thursday June 04, 2009 05:18PM EDT
My GAWD!! So Keynesian Economics, and its idea of "Government Borrowing does not matter, as we owe it to ourselves", is beginning to BREAK DOWN, after 70 years of nobody DARING to "question" it!! Why am I absolutely NOT surprised -- take a GUESS, people!! John Keynes made a "name" for himself on an idea that in fact DOES have its LIMITS, even though he and my college Econ teaching assistant (from Canada) would NEVER admit it!! Damned FOOLS, same as those guys in the 1950s who "borrowed from" (i.e. STOLE from!) our Social Security Funds, on the idea that it was all "government" funds anyway. When will they ever pay THAT back, you ask?? Probably on the day after never, same as all THIS years' idiotic borrowings!! As I have said for years, get ready to become the provinces of East Japan and West Germany, if we aren't already!!
Ernest B - Thursday June 04, 2009 05:18PM EDT
I think that the entire current US Congress should be charged with conspiracy to commit "Approved Madoffs", for running a Ponzi Scheme and a major SCAM. The Chairmen and women of the Banking and Finance Committees in both houses of Congress should be charged in court just like Madoff. The Punishment? Not to be allow to run for Congress or the Senate for the rest of their lives. Another friend of mine, who is a judge, said "I like that and let's go retro on them. Waterboard them for everyday they have shortened the retirement funds. It may end up being impossible since they lost the funds for a whole generation. We can put them to work at hard labor to earn the funds lost. Only one problem, they will all be dead of old age before they can draw their own retirement. Probate courts should assign all of their retirements to the baby boomers who are on Social Security." We should then have a general election to elect both houses of Congress, and the President. None of the current occupants in these positions should be allowed to run again. Further, there should be at least 5 political parties so that we can never again have one party rule in this country again.
ThingsThatMakeYaGoHmmm - Thursday June 04, 2009 05:19PM EDT
yeah, so how's that whole hopey changey thing workin out for ya.
Magee - Thursday June 04, 2009 05:21PM EDT
FINALLY!!!!! Someone in this dimwitted presidency has the COURAGE to speak up to try to stop the bleeding and SPENDING. If not stopped, we are doomed!
Yahoo! Finance User - Thursday June 04, 2009 05:21PM EDT
Let's give Bush/Cheney credit for creating SOME jobs-namely those for soldiers to replace the ones he sent to their death or permanent disability via his criminal war in Iraq!!
Thomas - Thursday June 04, 2009 05:21PM EDT
We just dodged a bullet and nobody knows it. We just avoided a total collapse of capitalism. So sorry for the debt. Let's get away from the wreckage, then address the spending. If you agree that we had to spend out of this mess (keynesian economics), then you can only assign blame for the debt to the one that caused the original mess.
yattaboy - Thursday June 04, 2009 05:22PM EDT
Universal reference standard for a flat, horizontal line: Obama Administration's forecasted debt-to-GDP ratio over the next decade. Remember, we're haven't addressed Medicare going broke in 2017 (or sooner --- tax revenue is decreasing...), or any number of other existing or proposed, trillion-dollar entitlements. Nice to see the Fed finally raise a curious eyebrow, but I'm not sure anything can be done without a radical re-consolidation of debt and entitlements.
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Carlos G - Thursday June 04, 2009 05:00PM EDT
This is a surprise?