BERNANKE: US FINANCIAL STABILTY IS THREATENED BY THE LARGE DEFICITS-HELLO WHO ENDORSED THOSE DEFICITS? YOU?!!!

The endless congressional hearings and inquiries continue as usual. Typically a scapegoat is dragged before some committee and gets blamed for whatever that committee did previously, such as when the FREDDIE and FANNIE heads were testifying about how they advanced mortgage loans that were not being paid back, after that same committee forced them to do so years before.

Now the government had taken action to cause the largest deficits in the history of the world to be taken on by the USA, in the form of increasing debt and increased borrowing to support them.

It is getting to the point that the world may not be able to support the ability to keep buying US government debt, unless it offers a significantly higher interest rate on such debt. That only makes sense, an investor expects to get a rate of return based on the risk or repayment or the risk of inflation while it is outstanding.

Either way, interest rates MUST go up to a point that investors want to buy such debt.

Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said in testimony to lawmakers today. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

Bernanke’s comments signal that the central bank sees risks of a relapse into financial turmoil even as credit markets show signs of stability. He warned the financial industry remains under stress and the credit crunch continues to limit spending.

The Fed chief said in his remarks to the House Budget Committee that deficit concerns are already influencing the prices of long-term Treasuries.

Yields on 10-year notes have climbed about 1 percentage point since the Fed announced plans in March to buy $300 billion of long-term government bonds. The notes yielded 3.57 percent at 11:37 a.m. in New York, down from 3.61 percent late yesterday.

Rise in Yields

“In recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen,” Bernanke said. “These increases appear to reflect concerns about large federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to-quality flows and technical factors related to the hedging of mortgage holdings.”

The budget deficit this year is projected to reach $1.85 trillion, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office.

“Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation,” Bernanke said in response to a question. “The Federal Reserve will not monetize the debt.”

Bernanke also addressed banks’ efforts to bolster common equity in the aftermath of regulators’ stress tests on the 19 largest U.S. lenders. He said the 10 firms that were found to have a total capital shortfall of $75 billion have now sold or announced plans to boost common equity by $48 billion.

“We expect further announcements shortly” as the banks submit plans due by June 8, Bernanke said.

This year’s projected budget deficit, four times the size of last year’s shortfall, has been driven up mostly by costs associated with the financial crisis.

‘Financing Problems’

“Bernanke knows that fiscal financing problems are already complicating monetary policy and are in danger of undermining Fed credibility,” said Alan Ruskin, chief international strategist at RBS Securities Inc. in Stamford, Connecticut. “He knows that there is only so much quantitative-easing financing that can be done.”

A fiscal stimulus of almost $800 billion, the government’s financial rescue effort, takeovers of Fannie Mae and Freddie Mac and increased costs of running safety-net programs such as unemployment insurance have added billions to spending.

President Barack Obama has pledged to halve the deficit by the end of his term. Even if successful, his administration anticipates the government will still run what would be, by historical standards, large deficits for the foreseeable future. Bernanke said the debt-to-gross domestic product ratio is set to reach the highest since the 1950s.

Administration’s Goal

Treasury Secretary Timothy Geithner, in an interview with Bloomberg Television May 21, said the administration’s goal is to cut the budget shortfall to 3 percent of GDP or smaller.

Rising government spending, forecasts for a record fiscal deficit and an unprecedented expansion of central bank credit have also fueled investor concerns that inflation will rise. Bernanke said inflation “will remain low” as the economy operates with slack resource use.

Wisconsin Representative Paul Ryan, the ranking Republican on the committee, said in opening remarks that the Treasury’s debt issuance and the Fed’s monetary stimulus, including purchases of government bonds, “can be a dangerous policy mix” and risks “runaway inflation” in the longer term.

Ryan said he’s concerned about “substantial” political pressure on the Fed to delay plans to tighten credit should unemployment remain high.

“The Fed’s political independence is critical and essential for safeguarding its commitment to price stability,” Ryan said. “We policy makers should realize that our most challenging policy period is going to be ahead of us.”

‘Great Skepticism’

In Europe, German Chancellor Angela Merkel said yesterday she views “with great skepticism what authority the Fed has and the leeway the Bank of England has created for itself,” to purchase a range of assets in their efforts to end the crisis. She urged central banks to return to a “policy of reason.”

Asked by a lawmaker about Merkel’s comments, Bernanke said, “I respectfully disagree with her views.”

“I am comfortable with the policy actions that the Federal Reserve has taken,” he said. “We are comfortable that we can exit from those policies at the appropriate time without inflationary consequences.”

Bernanke said the economy is likely to suffer more “sizable” job losses, which will weigh on consumer spending. Still, Fed officials are looking for a recovery in growth later this year as housing demand stabilizes and companies balance inventories with overall demand.

Lower Borrowing Costs

The central bank is buying as much as $1.75 trillion of housing debt and Treasuries this year to lower borrowing costs across the economy after reducing the benchmark interest rate almost to zero in December. Fed officials hold their next policy meeting June 23-24 in Washington.

Bernanke reiterated the Fed will “soon” begin disclosing more information on its lending as part of efforts to “enhance” the central bank’s transparency. The Fed will issue monthly reports with “considerable new information concerning the number of borrowers at our various facilities, the concentration of borrowing, and the collateral pledged,” the chairman said.

That would fall short of demands by some lawmakers, including Vermont Senator Bernie Sanders, the independent who in April won Senate approval of a nonbinding resolution asking the Fed to identify borrowers.

PRESIDENT WARNS US, THE TAXPAYERS, THAT THE DEBT HE IS PUTTING ON IS 'UNSUSTAINABLE"; THAT WE CAN NOT AFFORD IT-HELLO WHO IS TO BLAME, WE ARE?

In the most stunning statement ever uttered, the President warned us, the taxpayers, that the debt he is forcing on AMERICA is "unsustainable", as if it was us, the taxpayers, who forced this debt burden on the country.

Hello Mr. President, it was you who made fun of the TEA protesters, writing them off as wackos of some type. Who is the wacko now ?

Additionally the president said that eventually buyers of our debt instruments will not want to purchase more of our debt, and that will drive up interest rates.

Has the President's body been take over by aliens; he is blaming someone else for the rising debt and deficits that he is causing?

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

Earlier this week, the Obama administration revised its own budget estimates and raised the projected deficit for this year to a record $1.84 trillion, up 5 percent from the February estimate. The revision for the 2010 fiscal year estimated the deficit at $1.26 trillion, up 7.4 percent from the February figure. The White House Office of Management and Budget also projected next year’s budget will end up at $3.59 trillion, compared with the $3.55 trillion it estimated previously.

Two weeks ago, the president proposed $17 billion in budget cuts, with plans to eliminate or reduce 121 federal programs. Republicans ridiculed the amount, saying that it represented one-half of 1 percent of the entire budget. They noted that Obama is seeking an $81 billion increase in other spending.

Entitlement Programs

In his New Mexico appearance, the president pledged to work with Congress to shore up entitlement programs such as Social Security and Medicare. He also said he was confident that the House and Senate would pass health-care overhaul bills by August.

“Most of what is driving us into debt is health care, so we have to drive down costs,” he said.

Obama prodded Congress to pass restrictions on credit-card issuers, saying consumers need “strong and reliable” protection from unfair practices and hidden fees.

“It’s time for reform that’s built on transparency, accountability, and mutual responsibility, values fundamental to the new foundation we seek to build for our economy,” the president said.

Obama called on Congress to send to him by May 25 a bill that would clamp down on what he says are sudden rate increases, unfair penalties and hidden fees. He also wants the measure to strengthen monitoring of credit-card companies.

House Bill

The U.S. House of Representatives passed the credit-card bill last month after adding a provision requiring banks to apply consumers’ payments to balances with the highest interest rates first. The bill also imposes limits on card interest rates and fees.

The Senate continued debating its version of the bill today. It would require credit-card companies to give 45 days’ notice before increasing an interest rate. It would prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment.

The president said Americans have been hooked on their credit cards and share some blame for the current system. “We have been complicit in these problems,” he said. “We have to change how we operate. These practices have only grown worse in the midst of this recession.”

The American Bankers Association, which represents card issuers, has warned lawmakers and the Obama administration against taking punitive action or setting requirements that are too stringent. Doing so, the lobby group says, would limit consumer credit and worsen a credit crunch.

Obama said that restrictions “shouldn’t diminish consumers’ access to credit.”

Uncollectible Debt

Uncollectible credit-card debt rose to 8.82 percent in February, the most in the 20 years that Moody’s Investors Service Inc. has kept records. Lawmakers have said they’re under increasing pressure from constituents to respond to rising interest rates and abrupt changes to consumers’ accounts.

Obama held a White House meeting last month with executives from the credit-card industry, including representatives from Bank of America Corp. and American Express Co. Afterward, he told reporters that credit-card issuers should be prohibited from imposing “unfair” rate increases on consumers and should offer the public credit terms that are easier to understand.

“The days of any time, any increase, anything goes -- rate hike, late fees -- that must end,” Obama said today at Rio Rancho High School. We’re going to require clarity and transparency from now on.”

He also said the steps he has taken to stimulate the economy and start the debate on overhauling the health-care system are beginning to take effect.

‘Beginning to Turn’

“We’ve got a long way to go before we put this recession behind us,” Obama said. “But we do know that the gears of our economy, our economic engine, are slowly beginning to turn.”

Taking questions from the audience, Obama repeated his stance that he wants legislation to overhaul the health-care system finished before the end of the year, saying it is vital to the economy.

Health-care costs are driving up the nation’s debt and burdening entitlement programs such as Medicare, the government- run insurance program for those 65 and older and the disabled.

The programs’ trustees reported May 13 that the Social Security trust fund will run out of assets in 2037, four years sooner than forecast, and Medicare’s hospital fund will run dry by 2017, two years earlier than predicted a year ago.

Then what will we do?

Can a country declare bankruptcy, and re-organize? Maybe then we can put a cap on the legislative salaries to make them truly the people's representatives and have them serve as unpaid volunteers!