[Debate] (Fwd) US Fed: "from Keynesianism back to neoliberalism soon, please"

[Patrick Bond]

US Fed Chairman demands plan to cut social programs
By Barry Grey
4 June 2009

Testifying Wednesday before the Budget Committee of the House of 
Representatives, Federal Reserve Board Chairman Ben Bernanke demanded 
that Congress and the Obama administration map out a program of 
austerity measures to bring down record budget deficits. Bernanke made 
clear that the heart of this program should be sharp cuts in social 
spending, including basic entitlement programs such as Social Security 
and Medicare.

“Maintaining the confidence of the financial markets,” Bernanke said in 
prepared remarks to the committee, “requires that we, as a nation, begin 
planning now for the restoration of fiscal balance.”

The phrase “confidence of the financial markets” is a euphemism for the 
interests of Wall Street and major international banks and investors. In 
demanding the preparation of austerity measures to be imposed on the 
American people, Bernanke was speaking in behalf of the financial elite 
whose massive taxpayer subsidies have been the major cause of the 
explosive growth over the past year of the federal deficit and the US 
national debt.

Even as he called for plans to slash social programs, Bernanke said that 
the economic “recovery,” which he predicted would begin later this year, 
would be preceded by a continued surge in unemployment that would last 
for a protracted period. Acknowledging that nearly 6 million jobs in the 
US have been lost since the beginning of 2008, he said “sizable job 
losses and further increases in unemployment are likely over the next 
few months.”

Even when the economy stops shrinking—currently at an annual rate of 6 
percent—“businesses are likely to be cautious about hiring, and the 
unemployment rate is likely to rise for a time,” he said.

The Congressional Budget Office estimates that the fiscal 2009 federal 
deficit will top $1.8 trillion, more than four times the deficit for 
2008. Bernanke told the committee that the ratio of federal debt held by 
the public to the gross domestic product (GDP) will likely rise from 40 
percent before the onset of the financial crisis to 70 percent in 2011.

Warning that a continuation of such levels of debt could drive up the 
cost of government borrowing—a disastrous prospect for an economy 
dependent on a continuous stream of loans from China, Japan and other 
countries—Bernanke said that the deficits would have to be reduced 
substantially either through tax increases or budget cuts. “The Federal 
Reserve will not monetize the debt,” he declared.

He made clear that his prescription for “fiscal balance” was dramatic 
cuts in what remains of social programs, rather than tax increases. He 
zeroed in on the basic programs upon which tens of millions of Americans 
depend—Social Security and Medicare.

Noting projections of rising outlays for these entitlement programs as 
millions of baby boomers retire, he said “we will not be able to 
continue borrowing indefinitely to meet these demands.” Speaking of 
“difficult choices,” he said, “Congress, the administration and the 
American people must confront how large a share of the nation’s economic 
resources to devote to federal government programs, including 
entitlement programs.”

He said that if these programs were not reined in, taxes would have to 
be raised, and then made clear his preference, calling for “spending and 
budget deficits” to be “well controlled.”

Bernanke’s call for austerity policies is entirely in line with the 
program of the Obama administration. Obama has pledged to slash the 
budget deficit by half by the end of his term, placing a reduction in 
health care costs and entitlement “reform” at the center of his fiscal 
policy. This week, his treasury secretary, Timothy Geithner, in a 
two-day visit to China, pledged to reduce the US budget gap from the 
current 12.9 percent of GDP to 3 percent. In a speech at Peking 
University, he spoke of a permanent reduction in the “discretionary 
spending” of the American people.

At Wednesday’s Budget Committee hearing, the ranking Republican, 
Congressman Paul Ryan of Wisconsin, articulated even more openly than 
Bernanke the ruthless policy of the US ruling elite toward the working 
class. He said he was concerned about political pressure on the Fed to 
delay tightening credit in the face of long-term high unemployment, and 
urged the Fed chairman to adhere to the central bank’s “commitment to 
price stability”—in other words, to pursue a deliberate policy of 
keeping unemployment high in order to bludgeon the working class into 
accepting wage cuts and other concessions.

House Majority Leader Steny Hoyer, speaking for the Democrats, sounded a 
similar note. He told reporters that Bernanke is “absolutely right, we 
need to be very concerned about incurring additional indebtedness.” He 
said the Democratic-controlled House planned to pass legislation before 
its July 4 recess to establish “pay-as-you-go” rules, which, he said, 
would require that any increase in spending be offset by cuts in other 
programs.

In addition, he said, “We need to address entitlements.”

http://www.wsws.org/articles/2009/jun2009/fed-j04.shtml