WASHINGTON -- Federal Reserve Chairman Ben Bernanke told Congress Thursday that the economy could be gravely hurt if the nation's fiscal house is not put in order and Social Security and Medicare aren't revamped.
"If early and meaningful action is not taken, the U.S. economy could be seriously weakened," Bernanke said in prepared testimony to the Senate Budget Committee.
[Editor's Note: Can Ben Bernanke avert the coming crisis?]
It marked the Fed chief's most extensive comments to date on the challenges facing the United States with the looming retirement of 78 million baby boomers, the oldest of whom will start retiring next year.
This huge wave of retirees will hit the U.S. budget as well as the economy, he said.
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Absent policy changes by Congress and the White House, rising budget deficits are likely in the years ahead to increase the amount of federal debt outstanding to unprecedented levels, Bernanke said.
That could propel interest rates for consumers and businesses upward, which would be a worrisome development, he said.
"Thus a vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits," he said.
[Editor's Note: Protect your wealth from the baby boom crisis before it`s too late.]
The budget deficit last year totaled $248 billion, a four-year low. But forecasts call for the deficit to worsen for the 2007 budget year. The Congressional Budget Office is projecting $286 billion in red ink, while the White House is predicting an even bigger shortfall of $339 billion.
President Bush now wants to work with Congress to balance the budget by 2012. He'll be out of office by then.
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Editor's note:
Can Ben Bernanke avert the coming crisis?
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