Fiscal Sustainability

Today there is a common contradiction among American citizens - everyone is worried about the Government Deficit, but no one is willing to cut spending. Bernanke gives a brief, insightful speech on the topic. Nothing he says is very radical, but he sums up the current situation very well.

http://www.federalreserve.gov/newsevents/speech/bernanke20100427a.htm

My interpretation:

"The current deficit height is due to low tax revenues and high government spending. In the near future, the size of the deficit will narrow but we are on an unsustainable path. Problems include rising healthcare costs, largely due to an aging population. [Editor's note: The long term trend of increasing healthcare costs are largely due to increased innovation in medicine, although an aging population is also a factor].

The solution is that long term spending must be in line with revenues by cutting spending and increasing taxation. Current tax code is not efficient, equitable, nor transparent. The issue is structural and tax reform is necessary. If we fail to act, high interest rates will reduce America's potential output and it will hamper America's ability to respond effectively to crisis.

Reduced investor confidence can itself cause many other problems for the nation."


Few may argue with his advice from an economic standpoint, but I believe that politically the statement was very bipartisan. Further evidence that an independent FRB is valuable for America's economic stability.

I hope to see reform in the future to provide more sustainable spending, but forgive me if I'm skeptical.