The Congressional Budget Office and other forecasters say it’s possible the debt will remain at about 75 percent of GDP a decade from now. But then, judging by forecasts of health-care costs and baby-boomer retirements, they predict the debt will start rising again.
In that context, stabilizing the debt beyond Obama’s one-decade window is very challenging. Bernanke adds that, unless the US can bring its debt-to-GDP ratio down over time, the country will lack flexibility for dealing with potential events such as a war or a new financial crisis.
As Bernanke and prior Fed officials have long done, he refrained from proposing any specific fiscal policies, leaving that to the president and Congress.
But Bernanke echoed many other economists in criticizing the so-called sequester plan that is poised to take effect, under current law, on March 1. He said the sequester amounts to unnecessary economic damage up front, and not enough deficit reduction in the long run.
The cuts would hit everything from the FBI to public schools, and would come at a time when the economy is struggling to recover the jobs lost during recession.
Many members of Congress, including those at Tuesday's hearing, don’t like the sequester any better than Bernanke.
The sequester appears set to take effect, however, because the two parties differ sharply on how to replace it, with Republicans wary of tax hikes and Democrats wary of deep spending cuts or big adjustments in entitlement programs such as Medicare.