Idaho Congressman Mike Simpson, a senior member of the House Budget Committee, questioned Federal Reserve Chairman Dr. Ben Bernanke in a hearing today entitled, "The State of the U.S. Economy."
"I've been a member of this committee with the chairman for eight years now. For eight years we have had economists and other experts tell us we have a structural deficit problem that is unsustainable and we need to do something about it. So far we have failed to heed the warning," said Simpson during the hearing. He continued, "We are now at a situation where if we don't heed the warning there is going to be consequences to pay that nobody is willing to accept. We all know that we have to restrain discretionary spending, we all know that we have to get entitlements under control, and we all know that we need a pro-growth tax policy, instead of a 19th century tax code, one that fits the 21st century. We all know that. We might have some differences of exactly how to do some of these things, but well know the problem exists and we all know that we need to come together if we don't all these other things we talk about don't really matter, do they?"
Bernanke responded, "Yes, that is correct. It is striking that when the U.S. debt was downgraded by S&P last summer it was more about what they cited as political concerns and the ability of Congress to work together and make progress."
Simpson went on to ask, "Do you believe in the general assumption that $4-6 trillion in savings is the number that will stabilize our deficit and get us headed in the right direction? Could you paint a picture for us of what you think will happen to this economy if we don't take the steps necessary to stabilize our debt? And what will happen if we put it off another year or another year after that as we have been kicking that can farther down the road forever?"
Bernanke replied, "The idea was achieving ($4-6 trillion) would stabilize the debt to GDP ratio and maybe get some progress there, and I was supportive of "going big" so to speak when we were discussing all these issues last summer The bad case scenario, which ultimately will happen if we don't change this trajectory, (will be) analogous to what we have seen in some countries in Europe (where) investors will begin to lose confidence that we can manage our long term fiscal situation and we will see sharp movements in interest rates or loss of confidence in U.S. debt. In which case changes would have to made but in a much more chaotic, rapid, and disruptive way, then by doing a long term thoughtful way."
Simpson has been a supporter of efforts to pass sweeping and comprehensive debt reduction legislation that would constrain discretionary spending, reform mandatory programs and fix the tax code.