Fed Chairman warns Congress on national debt

By Molly Hennessy-Fiske
LA Times

WASHINGTON — Federal Reserve Chairman Benjamin S. Bernanke delivered a stern warning to members of Congress this morning to address the national debt, which has spiraled due to spending on federal programs, especially Social Security and Medicare, and threatens to harm the national economy.

"The longer we wait, the more severe, the more draconian, the more difficult the objectives are going to be," Bernanke said. "The right time to start was about 10 years ago."

Sen. Kent Conrad, (D-N.D.) chairman of the Senate Budget Committee, which called Bernanke in for advice, described his comments as "a clarion call."

"These long-term imbalances are threatening the long-term stability of the country," Conrad said.

At the end of last fiscal year, the federal debt consumed 37% of gross domestic product, Bernanke said during the two-hour hearing today.

Although the federal budget deficit reached a four-year low last year of $248 billion, Bernanke called it, "the calm before the storm," given the growth in federal spending. The Congressional Budget Office is projecting a $286 billion deficit this year; the White House $339 billion.

"A vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn add to subsequent deficits," Bernanke said.

Federal spending for Social Security, Medicare and Medicaid was 8.5% of GDP last year and is expected to reach 15% by 2030, Bernanke said.

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