Debt Ceiling Issues Should Not be a Tool for Budget Cuts, says Fed Chairman

( June 22, 2011

Debt Ceiling Issues Should Not be a Tool for Budget Cuts, says Fed Chairman

Debt Ceiling Issues Should Not be a Tool for Budget Cuts, says Fed Chairman

According to Federal Reserve Chairman Ben Bernanke, debt ceiling must not be employed as a bargaining chip to force budget cuts.

If it fails to enhance the debt limit, it could give birth to ‘severe disruption’ in the financial market.

He said that this will be a wrong instrument to implement ‘necessary and difficult fiscal-policy adjustments’. Barnanke puts it, “we should avoid unnecessary actions or threats that risk shaking the confidence of investors in the ability and willingness of the U.S. government to pay its bills”.

Government had tried to make things better by national debt relief programs. The policy makers are trying hard to increase the $14.3 trillion debt limit before 2nd of August.

It is because the Treasury Department would lose its borrowing authority after this date.

Bernanke further said, “I urge the Congress and the Administration to work in good faith to quickly develop and implement a credible plan to achieve long-term sustainability,” “I hope, though, that such a plan can be achieved in the near term without resorting to brinkmanship or actions that would cast doubt on the creditworthiness of the United States.”

The current fiscal predicts that the budget deficit would reach $1.4 trillion. Congressional Budget Office says that it would be at par the previous record of 2009. In 2010, the budget shortfall touched $1.13 trillion.

“History makes clear that failure to put our fiscal house in order will erode the vitality of our economy, reduce the standard of living in the United States, and increase the risk of economic and financial instability,” Bernanke said.

This shortfall has caused to lower the U.S bond yields. Statistics show how the bond yield has gone down 7 percent since 1980 and 5.48 percent in the 1998 through 2001 period.

The latest report issued in 3rd June by Labor Department, payrolls in the last eight months grew at the slowest pace. According to Manufacturing and Supply Management data, manufacturing developed in the same pace.  Consumer spending hiked a very meager percentage and rose less than anticipation.

In this circumstance, Bernanke opines that economic growth is likely to escalate by the later half of the year.Bernanke said last week that “accommodative monetary policies are still needed” to revamp a  “frustratingly slow” recovery.

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