Wednesday, November 21, 2012

Fed chairman warns US lawmakers on impact of 'fiscal cliff'

US Federal Reserve chairman Ben Bernanke

Source: Press TV

US Federal Reserve chairman Ben Bernanke has once again warned American legislators to ward off the abrupt and severe combination of legislated tax hikes and federal spending cuts, known as ‘fiscal cliff,’ due to take effect by the end of the year.

In a Tuesday speech at the New York Economic Club, Bernanke described fiscal cliff as a “substantial threat” to the country’s economic recovery and urged US lawmakers to put aside partisan political rivalries to avert the massive financial impact on the nation’s already slow economy.

‘‘Uncertainties about the situation in Europe and especially about the prospects for federal fiscal policy seem to be weighing on the spending decisions of households and businesses as well as on financial conditions,’’ he said, adding, ‘‘Such uncertainties will only be increased by discord and delay.’’

According to reported estimates, the impact of the scheduled federal spending cuts and the expiration of temporary tax breaks will take at least USD 500 billion out of the US economy, threatening to push it back into yet another recession.

Citing several outside economic assessments on the enormity of the ensuing tax hikes and spending cuts, Bernanke said ‘‘a fiscal shock of that size would send the economy toppling back into recession.’’

This is while the Obama administration and Congress are still negotiating over an agreement to reduce the government's massive budget deficit, which has exceeded USD 1 trillion for a fourth consecutive year.

The last time the debt limit was about to be reached, Republican lawmakers in the US Congress waited until the very last minute before deciding to raise the limit.

Saying "the deficit is on an unsustainable path," the Fed chairman further added, ‘‘As you will recall, the threat of default in the summer of 2011 fueled economic uncertainty and badly damaged confidence, even though an agreement ultimately was reached.’’

‘‘A failure to reach a timely agreement this time around could impose even heavier economic and financial costs,” he warned.

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