Bernanke said more than he said

I was interested to read Fed Chairman Ben Bernanke's speech from October 4. I wonder who else besides me was reading between the lines. Here are some interesting excerpts.

http://federalreserve.gov/newsevents/speech/bernanke20101004a.htm

Chairman Ben S. Bernanke
At the Annual Meeting of the Rhode Island Public Expenditure Council, Providence, Rhode Island
October 4, 2010

The recent deep recession and the subsequent slow recovery have created severe budgetary pressures not only for many households and businesses, but for governments as well. Indeed, in the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability. Conversely, good fiscal management is a cornerstone of sustainable growth and prosperity.

I got two major messages from this:

1- that I, the public, will have to accept some sacrifices. Even though I am not the one who made the policies!

and

2-I should be on the look out for financial instability. And I am assuming I better be prepared for hard times in the long term.

Let me return to the issue of longer-term fiscal sustainability. As I have discussed, projections by the CBO and others show future budget deficits and debts rising indefinitely, and at increasing rates. To be sure, projections are to some degree only hypothetical exercises. Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, "If something cannot go on forever, it will stop."9 One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis....

Deficits and debts rising indefinitely? Is this really a good plan?

Did you catch it that he is politely letting us know that eventually creditors will not be willing to lend to our country? (And why would they want to, in the circumstances we are in.)

Then there's a quiet little announcement: "fiscal adjustments...will certainly occur at some point." Oh really? And what would those adjustments look like?

He gives us two scenarios: one which gives people plenty of time to adjust, or a rapid and painful response. Would the latter scenario be a huge crash?

Remember, this is the guy who is in charge of our money, who usually tries to put a positive spin on things to make us feel better.

So what I got from his speech is that:

the government has spent too much money and therefore my standard of living is going to go down,

the debt and deficit are going to keep rising indefinitely until the rest of the world won't lend to us anymore,

fiscal adjustments WILL happen in an unpleasant way,

and, by the way, our economy is unsustainable.

Oh, and if you're aren't depressed enough already, here is another thing to think about:

Finally, a large federal debt decreases the flexibility of policymakers to temporarily increase spending as needed to address future emergencies, such as recessions, wars, or natural disasters.

So, as the wars, plagues, earthquakes, hurricanes, floods, and famines happen, our nation will have no resources to deal with them. Oh joy.

Thanks a lot, Ben, for making my day.