Bernanke Warns Budget Could Hurt Economy

[ckramer]

Bernanke Warns of Economy Could Be Hurt by Budget Strains


WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Thursday that the economy could be gravely hurt if the nation's fiscal house is not put in order and Social Security and Medicare aren't revamped.

"If early and meaningful action is not taken, the U.S. economy could be seriously weakened," Bernanke said in prepared testimony to the Senate Budget Committee.

It marked the Fed chief's most extensive comments to date on the challenges facing the United States with the looming retirement of 78 million baby boomers, the oldest of whom will start retiring next year.

This huge wave of retirees will hit the U.S. budget as well as the economy, he said.

http://biz.yahoo.com/ap/070118/bernanke.html?.v=6

======================

Duh! how about stopping the financial bleeding in Iraq for a change?

[CountAllVotes]

1. NO SH*T

Iraq is breaking the bank, not Medicare nor Social Security. We must toss these thugs in jail now!

:dem: :kick:

[NoodleyAppendage]

2. WHERE was your courage to speak out 6 MONTHS AGO???

Bernanke = COWARD.

J

[Selatius]

3. If you raised the cap on FICA to 120K or higher, problem solved with SoSec/Medicare

Unfortunately, it's not so easy to solve the problem of Bush adding 3 trillion dollars to the national debt.

[happyslug]

9. Actually the problem is what we spent the SS taxes on since 1981.

When Social Security (SS) was last "reformed" under Reagan, the rates were increased which brought in a lot of taxes into the Federal Government. These taxes were to be put into a "Trust" for use later when the baby boomer's retire. These taxes technically were invested in Treasury Bonds (T-Bonds) reserved only for SS and are kept by SS. The Treasury then used that money as Congress directed (i.e. paid for Reagan/Bush I expansion of Military Spending while cutting income taxes).

The problem is come about 2010-2012 the Taxes coming in from SS taxes will roughly equal what is going out, thus no more excess SS taxes to invest in T-Bonds. Worse about 2010-2012 the SOcial Security Administration (SSA) will have to go back to the Treasury and ask the Treasury to cash in those T-bond. The treasury will have to go back to Congress for authorization to increase the debt limit OR to raise Income taxes to pay back the SS Taxes. This is the real concern, NOT the fact SS may or may not run out of money in 2040 (And most economist believe SS will NOT run out ever based on present SS tax rates).

Thus the problem is NOT the SS tax rate or even the upper limit BUT THE FACT THAT THE SS TAXES COLLECTED SINCE 1981 WERE SPENT ON WEAPONS, AND THE ONLY WAY TO PAY BACK THESE TAXES ALREADY SPENT IS TO INCREASE INCOME TAXES. The real issue is Congress willing to increase Income taxes to pay back SS the money Congress and the President Spent in the period 1981-present? This is not so much this year but will come to a head about 2010-2012.

[Selatius]

10. From what I read SS will pay out more than it pays in roughly 2018-2020

http://zfacts.com/p/784.html



Bob Ball offers his own ideas to keep SoSec solvent for the next 75 years:

http://zfacts.com/p/487.html

[happyslug]

17. I keep forgetting that Clinton Boom, it pushed back the date to 2018

Clinton's boom increased the amount of money going into Social Security. This extra money pushed back the date when SSA has to 2018. It is expected that even at today's much lower growth rate, SS will NEVER run out of Money (even without reducing benefits). The only way that SS will run out of money by 2041 is if you have an extremely low rate of growth, a rate the US has NEVER had (But is at least statistically possible, through unlikely).

[antigop]

11. SS will not "run out of money" in 2040

It will still be collecting from the people who are paying into it at that time.

<edit to add> But you are correct. The trust fund bonds will have to be redeemed.

[Selatius]

13. Repubs define "run out" to mean cutting benefits 20 to 30 percent.

If you do nothing now, then when the Social Security Trust Fund does run dry, then you will either have to cut benefits (2041 or somewhere close) or raise taxes to make up the difference at that point, but the point is to avoid that situation several decades from now through several adjustments that aren't that big a deal.

[antigop]

14. I agree. But I don't want people saying "SS will be broke in 2040.

The Trust Fund may run dry, but they will still be collecting from people.

The adjustments shouldn't be that big of a deal, I agree.

However, Medicare will be a problem long before Social Security. That's where they should focus their attention. It irks me that so much is being discussed about Social Security, when the bigger problem is Medicare. The Medicare trust fund will run out long before the Social Security trust fund does.

[antigop]

15. What about the fact that Bu$h is only pres to cut taxes in time of war?

No mention of that, is there?

[ShortnFiery]

12. But Bush will Veto withdrawing any "tax breaks" for Big Oil. I wonder why?

:eyes:

[xultar]

4. Oh this guy is a keeper, he's brilliant.

[Sherman A1]

29. Agreed

Right on top of things....

[OrangeCountyDemocrat]

5. HEY POT......

Meet Kettle, you lousy piece of GARBAGE!!!

[denverbill]

6. I guess ending the tax cuts for billionaires needs to be done urgently then.

If that ignorant asswipe Greenspan hadn't supported those 6 years ago, we wouldn't be in this fucking mess.

[antigop]

28. Absolutely! n/t

[Kolesar]

7. I dont hear him defending the tax cuts that give us .03%/year growth

I am serious. Paul Krugman, the professor of economics at Princeton, analyzed tax cuts effect in stimulating the economy. Models showed that it could have an effect of ~1% over several decades, or about .03%/year. I am recalling the numbers from memory.

Those republicans are such bullshitters.

[DemReadingDU]

8. if you have access to TV, this is on CNBC

[endarkenment]

16. It is interest payments that are out of wack.

Fucking neoliberal moron. Stop the obscene corrupt tax giveaways to the filthy rich, end the corrupt criminal war in Iraq.

[InkAddict]

18. CNN Money Headline from Reuters says Bernanke blames boomers

http://money.cnn.com/2007/01/18/news/economy/bernanke.reut/index.htm?cnn=yes

[EndElectoral]

19. How about if the F**ing military expenditures were not revamped?

[NotGivingUp]

30. yeah...so funny how that is not even mentioned

[TexasLawyer]

20. the right man for the job

he "wrote the book" on economic depressions.

[Yavin4]

21. Anyone Else Here Recall Al Gore's "Lockbox" In 2000?

How he wanted to secure the surpluses into a lock box to shore up SS? Anyone recall how the media ridiculed him over it? Anyone recall Greenspan's testimony before Congress in early 2001 wherein he said that future surpluses would be bad for the economy and thereby tangentially approving Bush's tax cuts.

What you really need to understand here is that Bernake, and people like him, work for the power elite. Yes, they hold public offices, but they work for a tiny power elite who want to kill off the social safety net entirely. Don't believe a goddam word any of these hacks say. If you do, then you're a fool.

[JCMach1]

22. Wrong Headline, saw the testimony... he was going after 'entitlements'

Namely Social Security and Medicare, warning of the fiscal drag these would have on the budget... He wants privatization! HE is on no one's side but the bankers.

[sarcasmo]

23. Bernanke, visit Michigan and tell me how weekend our economy is.

[rocktivity]

24. Candidate for this year's "You Call This NEWS?" award

But fortunately there's a solution: raise or eliminate the social security $90K salary cap and repeal the tax cuts.

:headbang:
rocknation

[TexasLawyer]

25. Treasury bonds as "meaningless IOUs"

The big worry is that the SS trust fund (held as T-bonds) is somehow moved off limits to the program. From a 2005 Paul Krugman article:

<snip>


When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.

So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s." Readers who want a long-form debunking of this sophistry can read my recent article in the online journal The Economists' Voice (www.bepress.com/ev).
The short version is that the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund.

There are only two things that could endanger Social Security's ability to pay benefits before the trust fund runs out. One would be a fiscal crisis that led the U.S. to default on all its debts. The other would be legislation specifically repudiating the general fund's debts to retirees.

That is, we can't have a Social Security crisis without a general fiscal crisis - unless Congress declares that debts to foreign bondholders must be honored, but that promises to older Americans, who have spent most of their working lives paying extra payroll taxes to build up the trust fund, don't count.

Politically, that seems far-fetched. A general fiscal crisis, on the other hand, is a real possibility - but not because of Social Security. In fact, the Bush administration's scaremongering over Social Security is in large part an effort to distract the public from the real fiscal danger.

<snip>

http://www.pkarchive.org/column/010405.html

[MichiganVote]

26. This is all bullshit

[antigop]

27. Yes, it is

They run up the debt and then they have their "excuse" to cut Social Security and Medicare.

These guys are despicable.

[Javaman]

31. How long will this guy last?

Last time I checked anyone that told the truth was fired.