Bernanke Warns Deficits Threaten Financial Stability
June 4th, 2009Via: Bloomberg:
Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.
“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said in testimony to lawmakers today. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”
Bernanke’s comments signal that the central bank sees risks of a relapse into financial turmoil even as credit markets show signs of stability. He said the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending.
The Fed chief said in his remarks to the House Budget Committee that deficit concerns are already influencing the prices of long-term Treasuries.
Yields on 10-year notes have climbed about 1 percentage point since the Fed announced plans in March to buy $300 billion of long-term government bonds. The notes yielded 3.54 percent at 5 p.m. in New York, down from 3.61 percent late yesterday, as Bernanke’s warnings on the need to reduce the deficit supported the market.
Rise in Yields
“In recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen,” Bernanke said. “These increases appear to reflect concerns about large federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to-quality flows and technical factors related to the hedging of mortgage holdings.”
The budget deficit this year is projected to reach $1.85 trillion, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office.
“Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation,” Bernanke said in response to a question. “The Federal Reserve will not monetize the debt.”
Bernanke also addressed banks’ efforts to bolster common equity in the aftermath of regulators’ stress tests on the 19 largest U.S. lenders. He said the 10 firms that were found to have a total capital shortfall of $75 billion have now sold or announced plans to boost common equity by $48 billion.
Ben Bernake. Oh my gawd.“The Federal Reserve will not monetize the debt.”
Is this guy on drugs and/or the Manchurian canditate or what?
Didn’t Bernanke just start monetizing the U.S. Debt by buying U.S. Treasuries?
Hey Ben, in English what exactly do you mean when you explain a “reversal of flight-to quality flows? I am all ears. And technical factors related to the hedging of mortage holdings? Right. Ben, is English your first language or what?
Ben, do you really want to go down into history as the a hole who explained away the ruining of the country’s pursein the way you are doing now?
MAKES NO SENSE.
Can’t have it both ways.
Ben, you can’t print money to bail and buy out banks with U.S. Treasuries. This is paper.
To hell with you.To blame the problems of the U.S, on proliflegrate government spending. Holy crap, the only entity NOT in the government, not subject to any required audit spouting truisms that hold no wated takes balls.
Who head is up whose ass here
After months and months of reading this stuff (news, news analysis, Keynes and Hayek, Taleb, Griffin, Lew Rockwell’s site, etc.) I really
do wish I understood it better. But let me
take a feeble crack at it.
Big Ben is “putting his foot down”. He’s not
going to monetize the debt….further. He’s
already done some, but…he’s not going to
do more. This means the private bankers in
the Fed won’t buy any more T-bills from the
Treasury (because then they, the Treasury,
can print more dollar bills) and this is the
definition of inflation: more money floating
around, making each ‘unit’ of money (e.g the
dollar) worth less, requiring more to be
spent to acquire the same value. In other
words, now I need to pay three, not two, bucks
for that loaf of bread.
The inflation benefits those who are the source
of it first, but as the extra fiat money works
its way through the system, the later you
get your hands on it, the more you are the
sucker at the bottom of the Ponzi/Madoff/Govt
scheme.
I think the stage lights are on the Fed now,
and they don’t want to be seen as creating
this situation right now. A number of people
in Congress (ok, not ‘people’ really, but
they look like humans…) are supporting
Ron Paul’s HR 1207 to Audit the Fed. That’s
got them scared.
Also, these guys (private Fed, money/power
elite) want some kind of miraculous ‘soft
landing’ in between the Scylla of deflation
and the Charybdis of hyperinflation.
Simultaneously, they want to signal to their
buddy bankers in Asia, etc, that they are
willing to do anything to keep power/control.
Hence Ben’s statement about Raising Taxes or
Cutting Programs. Either way folks, it’s YOU
who lose. Ain’t gonna be the Fed.
If this isn’t clear to you, simply go to his
final, syntax-tortured ‘eff you’, when he says
it will be over his dead body that the US Govt
is allowed to pick/confirm Fed Directors or
Governors.
The creases and corners of the iron fist are
showing through the velvet glove. You don’t
see this very often, so pay close attention.
Implausable denial of ongoing perfidies.
http://kennysideshow.blogspot.com/2009/06/garry-trudeau-maligns-judaism-says-adl.html
The fourteen year old in me wants to go “No shit sherlock!”