February 28, 2007

A TIMELY WARNING:

Federal Reserve Chairman Ben Bernanke renewed a warning to the U.S. Congress on Wednesday that failure to take action soon to prepare for the retirement of aging Baby Boomers could lead to serious economic harm.

Bernanke did not address the outlook for U.S. interest-rate policy or Tuesday’s collapse in global stock markets in his prepared testimony to the House of Representatives’ Budget Committee, which were nearly identical to remarks he delivered to a Senate panel last month.

“A vicious cycle may develop in which large (budget) deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits,” Bernanke said.

Bernanke told Congress that over time, the United States needed to move toward fiscal policies that were sustainable and that would promote more saving to support the Social Security retirement program without imposing undue costs on taxpayers.

However, he offered no specific policy.

Perhaps we should work on a longevity dividend.