World Business

Bernanke urges White House, lawmakers to tackle deficit

(Xinhua)
Updated: 2010-04-28 10:55

WASHINGTON: US Federal Reserve Chairman Ben Bernanke urged the government and Congress to take action to curb federal budget deficit problem, warning that the red ink would do "great damage" to the US economy in the long run.

"Our nation's fiscal position has deteriorated appreciably since the onset of the recession and the financial crisis," Bernanke said at the first meeting of the newly created National Commission on Fiscal Responsibility and Reform.

Bernanke said that the White House and Congress should come up with a credible plan to reduce the nation's deficit, which hit a record $1.4 trillion last year.

According to US President Barack Obama's budget proposal to the Congress, the US federal budget imbalance in fiscal year 2010 will hit another historic high level of $1.56 trillion.

The exceptional increase in the deficit has in large part reflected the effects of the weak economy on tax revenues and spending, along with the costs of policy actions taken to ease the recession and steady financial markets.

The US government said that as the economy and financial markets continue to recover, and as the actions taken to provide economic stimulus and promote financial stability are phased out, the budget deficit should narrow over the next few years.

However, Bernanke was not that optimistic.

"Even after economic and financial conditions have returned to normal, in the absence of further policy actions, the federal budget appears set to remain on an unsustainable path," He said.

Bernanke said that failing to take sound actions would push interest rates higher -- not only for Americans buying cars, homes and other things -- but also for Uncle Sam to service its debt payments, he said.

"The path forward contains many difficult trade-offs and choices, but postponing those choices and failing to put the nation's finances on a sustainable long-run trajectory would ultimately do great damage to our economy," Bernanke said.

Bernanke also warned that policymakers shouldn't think that growing the economy -- and thus tax revenues -- will remedy the situation.

"Unfortunately, we cannot grow our way out of this problem," Bernanke said. "No credible forecast suggests that future rates of growth of the US economy will be sufficient to close these deficits without significant changes to our fiscal policies."

The US economy is facing a risk of downturn in the International Monetary Fund (IMF) latest World Economic Outlook report. The IMF expected that the US economy will grow 3.1 percent in 2010, but will slow down to 2.6 percent in 2011.