US Central Bank Chief Says Deficits ‘Unsustainable’

Posted February 2nd, 2012 at 11:55 am (UTC-5)
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The U.S. central bank chief says the government’s huge annual budget deficits are “unsustainable” and pose “serious economic consequences” for the country.

Federal Reserve Chairman Ben Bernanke told a congressional committee Thursday that lawmakers need to make it a “top priority” to make certain the U.S. debt, now more than $15 trillion and growing daily, is at least stable compared to the national income, if not declining. The country’s annual economic output now about equals the debt level.

The U.S. currently pays very low interest rates on the money it borrows to help operate its government, even after the financial services firm Standard & Poor’s downgraded the country’s top-rated AAA credit rating last year. But Bernanke warned that interest rates “can sour quickly” if investors lose confidence in the government’s ability to handle its financial policies. That could markedly increase the government’s borrowing costs.

The U.S. government said this week it expects to run a $1.1 trillion deficit for the year ending in September, a drop from 2011, but the fourth straight year deficits have totaled more than $1 trillion. President Barack Obama and Congress embarked last year on a deficit-cutting plan, but much of the savings has yet to take effect.

Bernanke said that over time the government’s increasing debt would inhibit the growth of the country’s economy, the world’s largest.

The U.S. economy has recovered sluggishly from its 2007 to 2009 recession, the country’s worst in seven decades. Bernanke called the U.S. economic growth “frustratingly slow,” and said the pace has left the economy “vulnerable to shocks.”

U.S. employers have been adding more workers to their payrolls, but not fast enough to substantially reduce the unemployment rate. It was 8.5 percent in December and economists are predicting it will remain at that level when the government releases its January figure on Friday. Companies added 200,000 jobs in December, a figure analysts say perhaps fell to 155,000 last month. About 13 million U.S. workers are unemployed.

The government said the number of workers making their initial claims for unemployment benefits dropped 12,000 last week to 367,000. The weekly number has fluctuated somewhat recently, but over several months has dropped. Economists say that when it consistently falls below 375,000, it is an indication that more hiring is occurring and the jobless rate is likely to go down.