Proving that he far more of a Monetarist clown than a Keynesian clown, Bernanke Calls on Lawmakers to Consider Rules on Fiscal Limits

Federal Reserve Chairman Ben S. Bernanke called on U.S. lawmakers to consider rules limiting federal spending, annual deficits or accumulated debt to curtail the risk of a fiscal crisis.



“Well-designed rules can help promote improved fiscal performance,” Bernanke said today in a speech in Providence, Rhode Island. A rule “could provide an important signal to the public that the Congress is serious about achieving long-term fiscal sustainability, which itself would be good for confidence,” he said.



Bernanke provided one of his most detailed prescriptions yet for reducing the record federal budget deficit. He said in congressional testimony in June that unless the U.S. makes a “strong commitment to fiscal responsibility,” the country in the long run will have neither economic growth nor fiscal stability.



“It is crucially important that we put U.S. fiscal policy on a sustainable path,” Bernanke said at the Rhode Island Public Expenditure Council’s annual dinner, where he was invited to speak by Senator Jack Reed, a Democrat from Rhode Island and member of the banking committee.



“The only real question” is whether adjustments to taxes and spending will come from a “careful and deliberative process” or from a “rapid and painful response to a looming or actual fiscal crisis,” Bernanke said.



Bernanke cited Switzerland, Sweden, Finland, the Netherlands, Canada and Chile as countries that improved their budgetary performance by using fiscal rules. He didn’t elaborate on what kinds of spending, deficit or debt limits would be best.



“I do think that the additional purchases -- although we don’t have precise numbers for how big the effects are -- I do think they have the ability to ease financial conditions,” Bernanke told the students.



Fiscal Sustainability and Fiscal Rules

Expect Hissy Fit From Krugman

It is crucially important that we put U.S. fiscal policy on a sustainable path.

after

Monetarist Nonsense

Bernanke Pisses In Wind

Calculated Risk Blasts Bernanke

This speech isn't worth reading for substance (Ben Bernanke is clueless on budget issues), but it reveals something about Bernanke.



Bernanke never mentioned "PAYGO" when he was head of the Council of Economic Advisors in 2005. In fact Bernanke barely mentioned the deficit in 2005 - except in postive terms - even though the structural deficit was in place and the cyclical deficit was coming (because of the housing bubble).



Today he said:



Our fiscal challenges are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors. Two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health-care costs.



Weren't the baby boomers going to get older in 2005? Oh my ...



This is an issue that 1) is outside of Bernanke's area of responsibility, 2) he has promised not to discuss, and 3) he has zero credibility on. Enough said.

No Credibility on Anything

Why Now?

I wonder why? Well, he missed the housing bubble completely - but what about the structural deficit?