With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress on Wednesday that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt.
Recent events in Europe, where Greece and other nations with large, unsustainable deficits like the United States are having increasing trouble selling their debt to investors, show that the U.S. is vulnerable to a sudden reversal of fortunes that would force taxpayers to pay higher interest rates on the debt, Mr. Bernanke said.
“It’s not something that is 10 years away. It affects the markets currently,” he told the House Financial Services Committee. “It is possible that bond markets will become worried about the sustainability [of yearly deficits over $1 trillion], and we may find ourselves facing higher interest rates even today.”
“We’re not going to monetize the debt,” Mr. Bernanke declared flatly, stressing that Congress needs to start making plans to bring down the deficit to avoid such a dangerous dilemma for the Fed.
“It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position.“
Ben Bernanke just told Congress that they will not be printing more money to try and inflate our debt away. Whether this is lip service or the Fed actually plans on carrying through remains to be seen.
Mr. Bernanke told Congress that we need a credible plan to prove to the rest of the world that we don’t have a debt problem. I suspect that one important factor of this plan will be to stop spending. The liklihood of this happening is quite slim, so we’ll speculate that no such plan will be produced – we’re $107 Trillion in debt for the next 35 or so years, and that’s not going away.
If the Federal Reserve is not going to monetize anymore, and Congress fails to put forth said plan, then guess what happens next?
One scenario could be a re-collapse of our stock markets as the easy-cash injections keeping the stock markets going are about to disappear.
Instead of the predicted near-term hyperinflationary environment we may actually see the exact opposite, a deflationary collapse that could force all asset prices down in a serious way.
This could be a head fake, so let’s watch what the Fed actually does as opposed to what they say.
Hat tip Willie Wonka
Also, watch Karl Denninger’s assessment of the Fed chairman’s recent comments :
Click here to subscribe: Join over one million monthly readers and receive breaking news, strategies, ideas and commentary.
Please Spread The Word And Share This Post
Mac Slavo Views:
Read by 90 people Date: February 26th, 2010 Website:www.SHTFplan.com
Copyright Information: Copyright SHTFplan and Mac Slavo. This content may be freely reproduced in full or in part in digital form with full attribution to the author and a link to www.shtfplan.com. Please contact us for permission to reproduce this content in other media formats.
The content on this site is provided as general information only. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a financial interest in any company or advertiser referenced. Any action taken as a result of information, analysis, or advertisement on this site is ultimately the responsibility of the reader.
SHTFplan is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.