Posted on 03/02/2007 10:11:13 PM PST by NormsRevenge
Evoking a familiar theme, Federal Reserve Chairman Ben Bernanke said Friday the United States will face a major crisis unless the federal government eases the looming economic strain of paying Social Security and other benefits to aging baby boomers.
As things currently stand, Social Security, Medicare and Medicaid obligations will devour 15 percent of the gross domestic product in 2030, up from about 8.5 percent this year, Bernanke told an economic summit held at Stanford University.
"If we don't do something about this, we will have to eliminate the armed forces and everything the government does. It clearly is not sustainable," Bernanke said in response to a question.
Now in his second year running the Fed, Bernanke already has urged Congress to tackle the thorny issue of how to cover Social Security benefits for the millions of baby boomers who will be retiring during the next 20 years. Taking care of those retirees will likely require steep tax increases or dramatic benefit decreases to avoid plunging the nation even deeper into debt.
Bernanke made his appearance just a few hours after the United States stock market suffered its worst week in more than four years amid intensifying concerns that the economies in both the United States and China are weakening simultaneously. He did not address the turmoil in his prepared remarks, and was not asked about it when he took several questions after his speech.
In an appearance before Congress earlier in the week, Bernanke helped allay investor fears by saying he expected moderate growth for the remainder of this year.
Returning to a campus where he taught economics early in his career, Bernanke on Friday devoted most of his talk explaining why globalization hasn't hobbled the Federal Reserve's ability to influence economic activity at home by lowering or raising interest rates.
However, "globalization has added a dimension of complexity to the analysis of financial conditions and their determinants which monetary policymakers must take into account," he added.
The Fed had steadily boosted rates for two years to fend off inflation. With economic growth slowing and some signs that inflation is improving, the Fed has left rates alone since August. Many economists think the Fed will leave rates where they are for much of this year. Wall Street investors predict the Fed's next move will be a rate cut - perhaps later this year.
One of the Fed's main jobs is to make sure that inflation doesn't get out of hand.
"There seems to be little basis for concluding that globalization overall has significantly reduced inflation in the United States in recent years," Bernanke said. "Indeed, the opposite may be true."
On the one hand, global competition and cheap imports flowing into the United States can be forces helping to restrain price increases, and thus inflation, Bernanke said. But on the other hand, strong demand from rapidly growing China and India - for instance - has likely contributed to the recent big increases seen in the prices of energy and other commodities, he said.
Last summer, oil prices hit record closing highs of more than $77 a barrel.
As the Fed seeks to keep inflation and the economy on an even keel, globalization has meant the Fed must spend more time analyzing financial developments around the world - as well as in the United States.
"One direct effect of globalization on Federal Reserve operations has been to increase the time and attention that policymakers and staff must devote to following and understanding developments in other economies, in the world trading system and in world capital markets," Bernanke said.
Low long-term interest rates in the United States and in other countries have puzzled policymakers and is a good example of a phenomenon that has added to the Fed's analytical workload, he said.
Former Fed Chairman Alan Greenspan - Bernanke's predecessor - called the behavior of these low long-term rates a "conundrum." Bernanke said a number of factors probably influenced these low rates, including the desire of many countries to save a lot.
AP Economics Writer Jeannine Aversa contributed to this story from Washington.
"If we don't do something about this, we will have to eliminate the armed forces and everything the government does. It clearly is not sustainable," Bernanke said in response to a question.
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slowly but steadily, the entitlement programs of the left are strangling this nation like a boa constrictor strangles its prey.
Bush tried, the Democrats lied, folks will be denied, the system will be putrified.
"If we don't do something about this, we'll have to eliminate the military..."
Well, isn't that part of the Dims' agenda, ultimately?
Pretty clever , huh? and despicable..
I think that the relationship betweeen the left and the rest of us is parasitic at best...except that, in this case, the parasite is stupid enough to kill its host.
BTTT
Correct. My father told me this when I was 14 years old when LBJs Medicare bill went through in 1964.
People should think back, or read history, about how Americans were accountable and responsible for their own well being.
Today everyone is demanding the Feds just "fix it." This philosphy is exactly the opposite of what it is, or it's becoming.
W came up with a failsafe approach on SS, but because the dems, and the MSM used scare tactics, it died.
Every politician and economist knows the problem. Why are there so few patriots who'll join together to fix it?
Who has time for this problem when there is Global Warming!!
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