is a sense of shared sacrifice across all segments of the economy. without being specific, these requirements suggest an approach in which we are willing to disappoint a host of special interests. it means, for example, controlling budget earmarks, trimming subsidies to numerous economic sectors, and resolving our banking problems and the perception that wall street is favored over main street, all of which would otherwise foster mistrust and cynicism among the public. leaving these issues unaddressed will undermine the essential popular support required for the tough decisions needed to bring our federal budget into balance. finally, there are no short - cuts. we currently must adjust from a misallocation of resources. there is no way to avoid some short - term pain in fixing the fundamentals in our economy. it is inconvenient for the election cycle, and it is undeniably terrible to have at least 10 percent of the labor force out of work. but short cuts now mean people out of work again in only a few years because we again try and avoid difficult adjustments. outlining a credible course for managing our debt for the future will accelerate the restoration of confidence in our economy and contribute importantly to sustainable capital investment and job growth. conclusion as i mentioned in the beginning, the fiscal projections for the united states are so stunning that, one way or another, reform will occur. fiscal policy is on an unsustainable course. the u. s. government must make adjustments in its spending and tax programs. it is that simple. if pre - emptive corrective action is not taken regarding the fiscal outlook, then the united states risks precipitating its own next crisis. eventually, government budgets that are severely out of balance are inevitably reformed – either by force of the markets or, preferably, by choice. unfortunately, nations often must experience a profound crisis to focus the government ’ s attention on taking corrective action. usually it is at this point that governments reestablish fiscal discipline and renew their commitment to an independent central bank. ironically, however, these generally are precisely the reforms that would have prevented a crisis in the first place. the only difference between countries that experience a fiscal crisis and those that don ’ t is the foresight to take corrective action before circumstance and markets harshly impose it upon them. in time, significant and permanent fiscal reforms must occur in the united states. i much prefer this be done well before anyone feels an irresistible impulse to knock on this central

gdp in only a few instances, and usually only during or immediately following a major war. as troubling as these deficits appear, even more disconcerting is the longer - term outlook for the federal debt caused by the accumulation of these deficits over time. the cbo ’ s long - term debt projections clearly show that current fiscal policies are unsustainable. in one scenario, the liftoff point for federal debt – that is, the time when debt starts rising without any sign of stabilizing – occurs shortly after 2020. by 2035, federal debt held by the public reaches 80 percent of gdp – a level only exceeded during and just after world war ii. in another, more pessimistic scenario, the liftoff in debt has already begun, with federal debt held by the public reaching 181 percent of gdp in 2035, easily exceeding the peak debt to gdp ratio of 113 percent that occurred at the end of world war ii. a key part of the problem stems from rapid growth in entitlement spending, including spending on social security and, especially, medicare. over the next 30 years, the government accountability office ( gao ) estimates that the present value of future expenditures on all social insurance programs exceeds future revenue by over $ 50 trillion. that is nearly four times the size of gdp and clearly unsustainable. adding to my concerns for the nation ’ s economic prospects is the current level of private indebtedness. as with government debt in the united states, private nonfinancial debt has grown steadily over the post - world war ii period, from 40 percent of gdp in 1945 to almost 175 percent in 2009. every consumer and business that is a net borrower would benefit from lower interest rates. and just as noteworthy, it should not escape our notice that rising inflation would trim the real value of their indebtedness. thus, high private indebtedness will contribute to the political pressure on the federal reserve. three paths forward returning to my opening comments, i see just three ways forward in dealing with our current and prospective fiscal imbalances. while each involves considerable pain only the third will resolve the imbalances without eventually causing inflation to accelerate or precipitating a financial and economic crisis. monetize. one option for dealing with a fiscal imbalance is for the central bank to succumb to political pressure and monetize the debt. as deficits and debt levels within a country rise relative to national