Federal Reserve Chairman Ben Bernanke said last week that the country must start making tough decisions to rein in future deficits while still meeting the economic needs of an aging population. His unusual focus on fiscal policy came as International Monetary Fund (IMF) officials are also warning the U.S. and other developed countries about the dangers of snowballing debt.
Sounding a note often heard on The Concord Coalition’s Fiscal Wake-Up Tour, Bernanke told a Dallas audience: “The arithmetic is, unfortunately, quite clear.” To avoid unsustainable budget deficits, he said, the U.S. would have to raise taxes, modify Social Security and Medicare, spend less on everything else — or some combination of those options.
With the economy still recovering from recession, Bernanke said this was not the time for “a sharp near-term reduction” in the federal deficit. But he said we should begin now “to develop a credible plan for meeting our long-run fiscal challenges.”
John Lipsky, who is the first deputy managing director for the IMF voiced similar concerns in a recent speech, saying “a higher public savings rate will be required to ensure long-term fiscal sustainability” for the United States.