The issue: Bernanke fears damage to U.S. economy and international reputation
The headline out of Fed chairman Ben Bernanke’s semi-annual appearance before Congress was his warning to Republicans that their plan to cut $61 billion in federal spending by the end of September will slow economic growth and cost jobs.
THE CENTRAL BANKER said the GOP plan would reduce growth by about two-tenths of a percent and, “That would translate into a couple hundred thousands jobs.” Adding, perhaps unnecessarily, “So it’s not trivial.”
Bernanke’s prediction was not as dire as some private forecasters but still it wasn’t what the GOP wanted to hear.
And the Fed chief had another, graver warning that also was not what the GOP wanted to hear, but that cautionary advice drew much less attention than his thought about spending cuts and the GDP.
He warned congressional Republicans not to hold an increase in the federal debt ceiling hostage to a broader attack on federal deficits. Congress must periodically raise the limit on how much the federal government can borrow. That limit is currently $14.3 trillion and Treasury says the nation will reach that ceiling sometime between April 15 and May 31.
WHEN REPUBLICANS controlled the White House and Congress, raising the borrowing limit was not a problem. Federal borrowing was increased $6.4 trillion under George W. Bush.
Now it’s a problem for the GOP thanks in part to the influence of the tea party, whose most radical faction doesn’t want to see it increased at all and whose other members want to see it tied to a draconian reduction in federal spending and the size of government.
If the government can’t borrow enough money to pay its debts, it goes into technical default. Last week, the Senate blocked a Republican effort to soften two of the most egregious effects of a default by authorizing the government to continue making Social Security payments and paying the interest on federal debt.
Bernanke said he had no problems with Congress tackling a long-term plan to lower the deficit, just not twinned with the debt ceiling, because “even the possibility of default on existing debts” would damage the U.S. economy and its international reputation for creditworthiness.
THE SENATE may not be a problem, but the House, with 87 Republican newcomers, half of them with tea party backing, could be. It certainly will be a test of House Speaker John Boehner’s leadership.
Boehner has said of the debt ceiling, “We’re going to have to deal with it as adults. Whether we like it or not, the federal government has obligations, and we have obligations on our part.”
Let’s hope the adults win.