Washinton: Federal Reserve chairman Ben Bernanke on Monday called for quick and decisive steps to rein in the exploding US budget deficit, warning failure to act could result in a serious crisis.
Warning that surging annual deficits presented a “real and growing threat” to the US economy, Bernanke told an audience in Rhode Island that a day of reckoning would come if action is not taken.
“The only real question is whether these adjustments will take place through a careful and deliberative process... or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.”
The US saw a record $1.47 trillion budget shortfall in the financial year that ended in September, as tax revenues dried up and the government splurged on economic bailouts and stimulus spending.
Bernanke suggested new fiscal rules from Congress could help put the US budget back into order, but only with sustained political support.
“Both current and future congresses and presidents will have to make some very tough decisions to put the budget back on a sustainable trajectory,” he said.
Bernanke said a reform of the fiendishly complex US tax code could also help.
“Most people agree that the US tax code is less efficient and less equitable than it might be; moreover, the code is excessively complex and imposes heavy administrative and compliance costs,” said Bernanke.
“Collecting revenues through a more efficient, better-designed tax system could improve economic growth and make achieving sustainable fiscal policies at least somewhat easier.”