Today, Federal Reserve Chairman Ben Bernanke said, in part, that rising deficits posed a significant long-term threat. Bernanke said: “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth.”
If the United States is unable to control its long-term deficits, it could weaken the dollar and drive up inflation, hurting the value of those dollar-denominated assets. Bernanke also said: “We now are on a process of slow and gradual repair, both in the financial system and the economy. We averted, I think, a very, very serious calamity. As a consequence, inflation is likely to move down some over the next year relative to its pace in 2008. That said, improving economic conditions and stable inflation expectations should limit further declines in inflation.”
OK People, for those too dopey to attend Freshman Economics: Since 2001, the Federal Government has created a deficit of $3 Trillion. We’ve devalued the dollar and borrowed money from China; thus creating an inflationary, recessionary economy. While interest rates were artificially low, people borrowed mortgage money at the going rate. Mr. Berneke and his buddies created this situation and now they need to fix it. $25 Billion is only 2.5 months of budget for the Iraq war. Small potatoes
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The only way to pay that off is massive inflation– 10-15% every year for 6-8 years. Worst part is the next President will take the fall for Greed the scope of which the world has never seen. So hold on to that house if you can, in a few years it will be worth three times its present value and that mortgage you can’t afford will represent a year’s salary
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Americans’ Debt Load Threatens the Entire Financial System. Years of spending more than they earn have left a record number of Americans standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.
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Future inflation will not manifest itself in the ways it did in the past. There will not be wage inflation due to a global labor market. The new inflation will result in higher prices for goods and services, but this won’t be offset by higher wages. So you will see an erosion of your standard of living. Housing prices won’t appreciate at the inflation rate because people won’t be able to afford higher prices for housing due to the fact that their incomes aren’t increasing at the same rate. Employers don’t need to increase wages because lower cost labor is available abroad. This is unlike the situation in the 1970s when there was both wage and price inflation. Now we will get only price inflation.
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