Federal Reserve Chairman Ben Bernanke said Wednesday that huge U.S. budget deficits threaten the nation's long-term economic health and should be addressed soon. He warned if Congress and the Obama administration don't tackle the problem, rates could rise and derail the economic recovery.
The government is running a budget deficit in excess of about $1.3 trillion, more than 10% of the nation's total economic output. Part of that is because of the recession, which reduced tax revenue and led to more spending on programs such as unemployment insurance and food stamps.
Unemployment today doesn't look like any unemployment in the recent American experience. We have the astonishing and dispiriting new reality that the "long-term jobless"—people out of work more than six months (27 weeks)—was about 44% of all people unemployed in February. A year ago that number was 24.6%. This is not normal joblessness. Even when the recovery comes, some jobs will never return.
In the U.S., we've always assumed that America has this terrific, unstoppable job-creation machine. And that during a "cyclical downturn," all the U.S. Congress or the states have to do is keep unemployment benefits flowing and retraining programs running until the American jobs machine kicks in and sops up the unemployed. But what if this time the new-jobs machine doesn't start?
Many upscale American Baby Boomer parents somehow think jobs like their own are part of the nation's natural order. They are not. The only new-jobs idea the philosopher kings around Mr. Obama have had is the "green economy." No doubt it will create some jobs. But an idea so dependent on subsidy economics is not going to deliver strong-form employment for the best, brightest or willing and able in the next American generation.
Even after a recovery is entrenched, Mr. Bernanke said, deficits could run between 4% and 7% of GDP, which he said aren't sustainable.
Mr. Bernanke offered a guarded read on the economy. Though he said a recovery was at hand and would gradually reduce unemployment in the year ahead, he cited a litany of worries, many of which he has talked about before: People out of work for a long time are seeing their skills and their longer-run income prospects erode; the housing market has yet to register a convincing recovery; the commercial real-estate sector is troubled and is hurting banks.
I'd be worried too, wouldn't you?
Source: The Wall Street Journal, April 8, 2010
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Robert R. Prechter Jr.: Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression