Jan 25, 2007

Will The Senate Change And Listen To Bernanke

Why should they change just when the party is starting.

Last Thursday Ben Bernanke, the Federal Reserves chief, testified before the Senate Budget Committee. He painted a grim picture for our kids and grand kids if the Congress continues to ignore basic financial realities. He said: “We are experiencing what seems likely to be the calm before the storm,”

What he is referring to is the projected increase, the government faces, in the costs associated with the very soon to happen retirement of the baby boomers. He further states: “These rising entitlement programs will put enormous pressure on the federal budget in coming years,”

Currently Social Security, Medicare and Medicaid together totaled about 40% of federal expenditures, or about 8.5% of America's gross domestic product. In nine years that amount is projected to increase to almost 50% and in 24 years to 70% of the total federal budget.

These numbers aren't new and won't take anyone by surprise, our enlightened elected officials have been using them as political fodder for ever. There are just ignoring them as they seem to ignore any other issue that might constrict their ability to spend more of our tax dollars.

The other concern is that while the deficit grows to meet these financial requirements, the government will have to borrow more, by issuing more bonds, thus paying a larger portion of its budget in interest. (We all know that as demand increases, so does it’s cost.)

Bernanke also said: “Thus, a vicious cycle may develop, in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits,”