Bernanke Testifies Before the House Budget Committee
Chairman Bernanke's testimony today underscored the fundamental lack of sustainability of the growing federal budget deficit, while simultaneously defending the large increases in deficit spending that were necessary to support economic recovery. Bernanke predicts real GDP to grow at 3.5% over the course of 2010, yet he acknowledged that this must be tempered by latent problems in the housing market.
Bernanke noted that it is crucial for the United States to reduce our federal budget deficit and commit to long-term fiscal sustainability in order to ensure that we don’t face the possibility of a sovereign debt crisis in the future. Even though the Greek debt crisis has temporarily bolstered confidence in the US as a "safe haven" market, measures must be taken to reduce our federal budget deficit soon or else investors could lose confidence in our ability to pay back our debt 10 or 15 years down the line. Yet while the budget must be reduced in the medium run, without continued stimulus in the short run, the US faces a second problem - the threat of a double dip recession.