the debates have been so intense and progress so difficult to achieve. recently, negotiations over our long - run fiscal policies have become tied to the issue of raising the statutory limit for federal debt. i fully understand the desire to use the debt limit deadline to force some necessary and difficult fiscal policy adjustments, but the debt limit is the wrong tool for that important job. failing to raise the debt ceiling in a timely way would be self - defeating if the objective is to chart a course toward a better fiscal situation for our nation. the current level of the debt and near - term borrowing needs reflect spending and revenue choices that have already been approved by the current and previous congresses and administrations of both political parties. failing to raise the debt limit would require the federal government to delay or renege on payments for obligations already entered into. in particular, even a short suspension of payments on principal or interest on the treasury ’ s debt obligations could cause severe disruptions in financial markets and the payments system, induce ratings downgrades of u. s. government debt, create fundamental doubts about the creditworthiness of the united states, and damage the special role of the dollar and treasury securities in global markets in the longer term. interest rates would likely rise, slowing the recovery and, perversely, worsening the deficit problem by increasing required interest payments on the debt for what might well be a protracted period. 3 some have suggested that payments by the treasury could be prioritized to meet principal and interest payments on debt outstanding, thus avoiding a technical default on federal debt. however, even if that were the case, given the current size of the deficit and the uneven time pattern of government receipts and payments, the treasury would soon find it necessary to prioritize among and withhold critical disbursements, such as social security and medicare payments and funds for the military. moreover, while debt - related payments might be met in this scenario, the fact that many other government payments would be delayed could still create serious concerns about the safety of treasury securities among financial market participants. the hippocratic oath holds that, first, we should do no harm. in debating critical fiscal issues, we should avoid unnecessary actions or threats that risk shaking the confidence of investors in the ability and willingness of the u. s. government to pay its bills. in raising this concern, i am by no means recommending delay or inaction in addressing the nation ’ s long - term fiscal challenges – quite the opposite. i urge

ben s bernanke : fiscal sustainability speech by mr ben s bernanke, chairman of the board of governors of the federal reserve system, at the annual conference of the committee for a responsible federal budget, washington dc, 14 june 2011. the original speech, which contains various links to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * i am pleased to speak to a group that has such a distinguished record of identifying crucial issues related to the federal budget and working toward bipartisan solutions to our nation ’ s fiscal problems. today i will briefly discuss the fiscal challenges the nation faces and the importance of meeting those challenges for our collective economic future. i will then conclude with some thoughts on the way forward. fiscal policy challenges at about 9 percent of gross domestic product ( gdp ), the federal budget deficit has widened appreciably since the onset of the recent recession in december 2007. the exceptional increase in the deficit has mostly reflected the automatic cyclical response of revenues and spending to a weak economy as well as the fiscal actions taken to ease the recession and aid the recovery. as the economy continues to expand and stimulus policies are phased out, the budget deficit should narrow over the next few years. unfortunately, even after economic conditions have returned to normal, the nation faces a sizable structural budget gap. both the congressional budget office and the committee for a responsible federal budget project that the budget deficit will be almost 5 percent of gdp in fiscal year 2015, assuming that current budget policies are extended and the economy is then close to full employment. 1 of even greater concern is that longer - run projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy show the structural budget gap increasing significantly further over time. for example, under the alternative fiscal scenario developed by the congressional budget office, which assumes most current policies are extended, the deficit is projected to be about 6 - 1 / 2 percent of gdp in 2020 and almost 13 percent of gdp in 2030. the ratio of outstanding federal debt to gdp, expected to be about 69 percent at the end of this fiscal year, would under that scenario rise to 87 percent in 2020 and 146 percent in 2030. 2 one reason the debt is projected to increase so quickly is that the larger the debt outstanding, the greater the budgetary cost of making the required interest payments. this dynamic is clearly unsustainable. the nation ’ s long - term fiscal imbalances did not emerge