–Fed Chief Bernanke, OMB’s Orszag, CBO’s Elmendorf All Voice Concerns
–As Congress Returns From Break, Bernanke Says Hard Choices Loom
–White House’s Orszag: Important To ‘Get Ahead’ of Deficit Crunch
–CBO’s Elmendorf: American Fiscal Policy Is ‘Unsustainable’

By John Shaw

WASHINGTON (MNI) – With Congress set to return from its spring
recess and plunge into writing a fiscal year 2011 budget resolution,
three of the leading voices on fiscal issues offered stern deficit
warnings this week.

In separate events, Federal Reserve Board Chairman Ben Bernanke,
White House budget director Peter Orszag and Congressional Budget Office
director Steve Elmendorf all said the nation is on a perilous fiscal
path that must be reversed or the U.S.’s economy will suffer grievous
harm.

None of the three offered specific ideas to redirect U.S. fiscal
policy, but all said that fundamental — and difficult — choices will
be required.

Bernanke, in remarks Wednesday to the Dallas Regional Chamber, said
American fiscal policy is heading in the wrong direction and that as the
population ages the U.S. “must begin now to prepare for this coming
demographic transition.”

“The arithmetic is, unfortunately, quite clear. To avoid large and
unsustainable budget deficits, the nation will ultimately have to choose
among higher taxes, modifications to entitlement programs such as Social
Security and Medicare, less spending on everything else from education
to defense, or some combination of the above,” Bernanke said.

“These choices are difficult, and it always seems easier to put
them off — until the day they cannot be put off any more,” he said.

The Fed chief said that immediate, dramatic deficit reduction is
“neither practical nor advisable,” but urged policymakers to develop a
more sustainable long-term path.

These themes were echoed Thursday by White House budget director
Peter Orszag who said the U.S. should develop a strategy to confront
long-term deficit challenges.

“We’d like to get ahead of the problem,” Orszag said in remarks at
the Washington Economic Club. He said failure to do so would pose an
“excruciating set of trade offs” in the future.

Orszag said that the new health care reform law will also play a
critical role in stabilizing the nation’s deficit problems. He predicted
the sweeping plan will generate “larger” savings than the Congressional
Budget Office estimated when it said, in a preliminary analysis, that
the health law would generate $143 billion in savings over ten years and
about $1.3 trillion in savings over the second 10 years.

Orszag said the new law also creates an array of pilot programs and
demonstration projects that could generate sizeable budget savings for
health care programs.

The White House budget chief noted the law creates a Medicare
provider payment board that may be able to identify large savings in
Medicare, one of the key programs that is driving long-term deficits
skyward.

In response to a question, Orszag said the administration has no
official position on the merits of instituting a VAT. He said that
comments this week supporting that idea by former Federal Reserve Board
Chairman Paul Volcker were given by Volcker in his “private capacity.”

Elmendorf, the CBO chief, also said Wednesday that the nation’s
fiscal course is “unsustainable” and that fundamental reforms are
needed.

The nation’s deficit challenge, he said, “cannot be solved through
minor tinkering.”

Elmendorf noted the public debt trajectory contained in President
Obama’s most recent budget. Public debt would soar from $7.5 trillion at
the end of 2009 to $20.3 trillion at the end of 2020 if Obama’s fiscal
year 2011 budget is approved, he noted.

Elmendorf, speaking at a breakfast sponsored by the Christian
Science Monitor, said the CBO is examining various approaches to a VAT.

He said that the CBO has received a number of queries about the VAT
from Capitol Hill and his agency is “figuring out how we can best answer
questions” about the VAT.”

“An important part of our job, a hard part of our job, is to try to
see some distance ahead what members of Congress are interested in,”
Elmendorf said.

** Market News International Washington Bureau: (202) 371-2121 **

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