Bernanke raises red flag as fiscal gap climbs

Federal Reserve chairman, Ben S. Bernanke, called for a plan to restore fiscal balance, even as the Barack Obama administration spends its way out of trouble in the aftermath of the worst economic crisis since the Great Depression. Testifying before the House Budget Committee, Bernanke said the US government must address the immediate problems of a crippling recession that has erased trillions of dollars in household wealth, hit investment portfolios and sent unemployment soaring. Still, he said, the government needs to think about putting its fiscal house back in order. "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," he said. "Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance," he added. The deficit is expected to reach US$1.8 trillion this year, the highest projections as a share of gross domestic product (GDP) since World War II. He said that the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending. The Fed chief said deficit concerns are already influencing the prices of long-term Treasuries. Yields on 10-year notes have climbed about 1% since the Fed announced plans in March to buy US$300bn of long-term government bonds.