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February 4, 2011 / J. Shaw

Bernanke:Catastrophe if Debt Limit not Raised-Speech Highlights

Federal Reserve Chairman Ben Bernanke on Thursday issued a stern warning to Republican lawmakers that delays in raising the United States’ $14.3 trillion debt limit could have “catastrophic” consequences.

“Beyond a certain point … the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic,” he told the National Press Club.

Bernanke coupled his warning with a call for the Obama administration and Congress to put in place a credible plan to curb future budget deficits

The following are highlights from Federal Reserve Chairman Ben Bernanke’s speech to the National Press Club on Thursday.


Emerging markets are growing very quickly for a couple of reasons. One is just the fact there has been a long-term trend for emerging markets to develop very quickly and that on the whole is a very positive development because it means that people who were in poverty are moving closer and closer to a more middle class standard of living.

“But as people’s diets are becoming more sophisticated and as they eat more beef and less grains and so on, the demand for food and energy rise and that’s the primary long-term factor affecting the real price of commodities and food.

“Some of the emerging markets are facing inflationary pressures because their own economies are growing perhaps even faster than their capacity.”I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy because emerging markets have all the tools they need to address excess demand in those countries.”


The economy has to grow about 2-1/2 percent in real terms just to accommodate people coming into the work force so in order to keep the unemployment rate constant we need about 2-1/2 percent growth. … We were looking at a situation in August where we thought the unemployment rate would actually begin to rise again. … Looking forward into 2011 we think it will be above 2-1/2 percent and therefore we expect to see unemployment declining over time. It’s not as fast as we would like but on the other hand there is some good news. Looking at the whole range of statistics on the labor market, the sense is that employers are becoming more willing to hire and I think we’ll start seeing some stronger payroll reports and some lower unemployment rates pretty soon.” SHAW-On data out today only 36,000 jobs were added to the market. Brenanke is dreaming if he thinks the recovery is growing.


“This is a very serious matter, because under current law if the debt limit is not extended for a time, the Treasury has various resources it can use to make payment on the national debt. Beyond a certain point it would not have those resources and the United States could conceivably, I think this is very remote, but it’s not something you want to play around with, the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic. I would very much urge Congress not to focus on the debt limit as being the bargaining chip in this discussion, but rather to address directly the spending and tax issues that we have to deal with in order to make progress on this fiscal situation.”



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