Ben Bernanke Is Off the Reservation


Federal Reserve chairman Ben Bernanke spoke with the National Press Club on Thursday, delivering a “mildly optimistic update on the economy’s current state,” as Jon Ward of the Daily Caller puts it.  His thoughts about the national debt, however, were not optimistic at all.

Bernanke warned that “by definition, the unsustainable trajectories of deficits and debt that the [Congressional Budget Office] outlines cannot actually happen, because creditors would never be willing to lend to a government whose debt, relative to national income, is rising without limit.”  As Ward points out, Bernanke’s dire assessment of the national debt didn’t even include the $4.6 trillion worth of I.O.U.s stuffed into the Social Security and Medicare “trust funds,” which are enduring proof that Congress cannot be trusted to manage such funds.

This is quite a difference from the official Obama Administration position on the national debt, which is that it can increase forever, and irrational fears about insolvency should not be allowed to halt vital attempts to Win The Future with ethanol, solar shingles, and high-speed rail.

If you discuss the debt with someone who doesn’t follow politics or economics closely, they’ll eventually ask you how big it can possibly get before something terrible happens.  The short answer is $14.3 trillion, which is the current legal debt ceiling – but of course, Congress can simply change the law and raise the limit, something it is preparing to do next month.  Try calling up your favorite credit-card company and telling them you’ve decided to raise your own credit limit.

The long answer is what Bernanke told the National Press Club: the national debt will detonate and destroy us when we either can’t sell any more of our debt to foreign creditors, or we can’t afford to pay the interest on the money we’ve already borrowed.  President Obama is comfortable in his belief that our children will need to deal with either or both of those problems, and has been happy to tuck additional bills for madcap deficit spending into their cribs.  Considering the early bankruptcy of Social Security, a more realistic assessment is that the event horizon of budget collapse is years, not generations, away.

Bernanke also seemed disinterested in perpetuating Democrat spin that failure to raise the debt limit next month means the government would instantly default on its obligations.  That’s nonsense – the cost of servicing the debt is a little over $400 billion, measured against a budget of $3.6 trillion.  There’s a lot of spending we could cut before we had to touch interest payments on the national debt.  We eventually will reach the point where interest on the debt consumes the entire federal budget, but we’re not there yet.  Keeping us from getting there is the point behind Republican plans to cut our bloated budget.

It’s interesting to hear Bernanke sound so gloomy about subjects the Administration would prefer not to discuss.  Remember back in the 90s, when Federal Reserve chairman Alan Greenspan could cause the stock market to tumble by sneezing on his salad at lunch?  The 90s economy was based on bubbles and hype, and grim talk from the Fed chairman threatened to pop those bubbles.  Things are more… gritty and realistic these days.  Bernanke isn’t saying anything serious people don’t already know.  Too bad serious people are in such short supply at the White House.