Federal Reserve Chairman Ben S. Bernanke endorsed additional fiscal stimulus, saying the credit crunch is ``hitting home'' as Americans find it harder to get loans, threatening a prolonged economic slump.
Lawmakers ``should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers,'' Bernanke said in testimony to the House Budget Committee. ``Such actions might be particularly effective at promoting economic growth and job creation,'' he said, calling consideration of a stimulus ``appropriate.''
House Speaker Nancy Pelosi has proposed an initiative of as much as $150 billion after the credit crunch deepened in recent months and the effect of the first stimulus package wore off.
Wisconsin Representative Paul Ryan, the budget panel's ranking Republican, said in the hearing that the Democratic plan is ``bloated'' and may balloon the budget deficit to $1 trillion. ``Throwing more money out the door may help for a quarter, but it won't help to create jobs,'' Ryan said afterward.
Bernanke, under questioning, declined to recommend a size for the package. He said the current ``large'' deficit is ``not totally inappropriate given the nature of the emergency that we're facing and not totally avoidable given the loss of tax revenues.''
Let's reiterate a few basic facts.
1.) The Federal government has been running a budget deficit of at least $500 billion dollars/year since 2003. This is based on the total amount of debt issued per year. The debt is both publicly held and intra-governmental.
2.) The total amount of debt held by foreign investors has doubled from (roughly) $1 trillion to (roughly) $2 trillion.
3.) Total US debt outstanding is about $10.2 trillion, or roughly 70% of total US GDP.
Bottom line: there's a ton of debt out there.
My main concern with this issue was the dollar's multi-year drop. However, the dollar has rallied for the last month or so. In other words, the dollar isn't an issue right now (although the dollar is still at very low levels).
My secondary concern is the inability of the US to make difficult choices. The US government has continued to spend like it has lots of money when in fact it doesn't. In addition, there are difficult choices ahead for the US, especially when it comes to entitlement spending (read medical expenses).
However, the US economy is in desperate need of a standard Keynsean push right now -- so long as it is the right kind of push. For example, infra-structure spending would be good on several fronts. It would provide employment for displaced construction workers hurt by the housing downturn. This would help to ameliorate foreclosures and boost consumer spending a bit. It would also provide help for businesses when the economy rebounds.
I still have mixed feelings about this, although I have to admit this seems like the worst time to be fiscally prudent. But if not now, when? Fiscal responsibility is always something we'll do tomorrow.