and older. this ratio is projected to decline to around three by the time most of the baby boomers have retired in 2030, and further increases in average life expectancies may push this ratio down a little more in the years after that. moreover, the demographic pressures on the budget appear likely to be compounded by continued large increases in per capita spending on health care. admittedly, the ability of budget analysts to forecast the trajectory of health - care spending is limited, but it is prudent to assume that federal health spending per beneficiary will continue to rise faster than per capita gdp for the foreseeable future. in a nutshell, the problem is that, in the absence of significant policy changes, and under reasonable assumptions about economic growth, demographics, and medical costs, federal spending will rise significantly faster than federal tax revenues in coming years. as a result, if my remarks reflect my own views and not necessarily those of my colleagues on the federal open market committee ( fomc ). current policy settings are maintained, the budget will be on an unsustainable path, with the ratio of federal debt held by the public to national income rising rapidly. a failure to address these fiscal challenges would expose the united states to serious economic costs and risks. a high and rising level of government debt relative to national income is likely to eventually put upward pressure on interest rates, thereby restraining capital formation, productivity, and economic growth. indeed, once the economy has recovered from its downturn, fiscal deficits will crowd out private spending. large fiscal deficits will also likely put upward pressure on our current account deficits with the rest of the world ; the associated greater reliance on borrowing from abroad means that an increasing share of our future income will be required to make interest payments on federal debt held abroad, thereby reducing the amount of income available for domestic spending and investment. a large federal debt will also limit the ability and flexibility of policymakers to address future economic stresses and other emergencies, a risk that is underscored by the critical fiscal policy actions that were taken to buffer the effects of the recent recession and stabilize financial markets in the wake of the crisis. and a prolonged failure by policymakers to address america ’ s fiscal challenges could eventually undermine confidence in u. s. economic management. i do not underestimate the difficulty of crafting a long - range budget plan that will both garner sufficient political support and have sound economic foundations. the reactions to the proposals offered by

national saving relative to investment, which should have the direct effect of restraining u. s. imports and shrinking the u. s. trade deficit. more generally, by lowering interest rates, fiscal consolidation should diminish net capital inflows into the united states, thereby reducing the current account deficit in this country and current account surpluses elsewhere. the resulting pattern of international debt accumulation and capital flows would be more balanced than at present, promoting a more sustainable pattern of growth in the global economy. indeed, such a rebalancing program was strongly endorsed by the leaders of the group of twenty at their recent meeting in seoul. although the fiscal consolidation process is just beginning, the weakness of private demand in the united states and other advanced economies, combined with robust growth in the emerging market economies, has led to a two - speed global recovery that already is creating pressures toward rebalancing. the advanced economies started their recoveries in 2009, but economic growth has barely exceeded the growth rate of potential output ; as a result, the level of output in most advanced economies, including the united states, is still well below its potential. forecasts suggest that growth and resource utilization will remain lackluster in the advanced economies for some time. furthermore, inflation pressures in most other advanced countries, as in the united states, remain quite low, reflecting the existence of substantial economic slack. in contrast to the subdued pace of recovery in the advanced economies, economic activity in the emerging market economies has rebounded sharply, and the level of output in most of those economies now well exceeds pre - crisis levels. the consequence is that policymakers in emerging market countries have turned their attention to the threat of rising inflation and have begun tightening monetary policy. the stronger growth prospects in the emerging market economies, coupled with the tightening stance of their monetary policies, appear to be contributing to a resurgence of capital inflows to these economies. sizeable differentials in expected returns between advanced and emerging market economies also seem to be reinforcing these flows and causing emerging market currencies to rise. in light of their increasing concerns about inflation, a case can be made that emerging market policymakers should welcome currency appreciation because it reduces inflation pressures and, over time, aids global rebalancing. however, some of them have argued that unduly large and rapid capital inflows may lead to asset - price bubbles and expose the financial sectors in their economies to a subsequent reversal of these flows, while rapid currency appreciation could