Money in the Morning

Bernanke Sounds the Deficit Alarm

Federal Reserve Chairman Ben Bernanke ventured out of the Fed's comfort zone to warn about unsustainable deficits Monday. In a speech in Providence, Bernanke said it's "crucially important" to put the country on a sustainable fiscal path in the medium- and long-term while also avoiding premature austerity measures.

Excerpt (via WaPo): "One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. ... The only real question is whether these adjustments will take place through a careful and deliberative process . . . or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis." http://goo.gl/RLZN

The Fed chairman also called for stronger budget rules, including tougher PAYGO. He said it has worked for other countries. The fiscal hawks at the Committee for a Responsible Federal Budget applaud. http://goo.gl/JKjK

CalculatedRisk finds Bernanke speaking out of turn on the deficit since he didn't do anything to curtail it when he started and since the Fed doesn't do fiscal policy anyways: http://goo.gl/U2BJ

More debt talk Tuesday -- The left-leaning Economic Policy Institute holds a day-long forum on "America's Fiscal Choices" at the Newseum. The headliners: Paul Krugman, Martin Feldstein of Harvard, Jan Hatzius of Goldman Sachs, Bob Greenstein, John Podesta, others.  http://goo.gl/E2Ha

Look ahead: Treasury Department's estimate of the 2010 deficit -- likely between $1.3 trillion and $1.4 trillion -- is expected by the middle of this month.

Campaign rhetoric may dim hopes for post-election deficits cuts, writes Gerald Seib: "Democrats are running TV ads across the U.S. accusing Republicans who have dared to discuss changes in Social Security and Medicare of wanting to undermine those programs. ... But Republicans aren't doing much more to pave the way for curbing Medicare and Social Security spending. Their "Pledge to America," a manifesto detailing stands their congressional candidates support, says nothing specific about reforming those programs." http://goo.gl/txv1

BUDGET IMPACT STORY OF THE DAY: Cities facing big shortfalls are turning to states to bail them out. NYT: "Across the country, a growing number of towns, cities and other local governments are seeking refuge in similar havens that many states provide as alternatives to federal bankruptcy court... But some public finance experts worry that the states, mired in their own financial problems, will not force communities to attack their problems head-on and solve them." http://goo.gl/mheu

Former NYT economics correspondent and Capital Gains and Games blogger Edmund Andrews heads to National Journal: http://goo.gl/auzM

TAX CUTS UPDATE -- At a Monday meeting of the President's Economic Recovery Advisory Board, Martin Feldstein pressed the president to keep all the Bush tax cuts to boost "confidence." Obama defended his plan to let the upper-income cuts expire, and he got some backup from Paul Volcker. "I want to assure you that my psychology will not be affected," Volcker said. AP: http://goo.gl/GHlR

Obama says it's time for "a period of healing and consolidation and implementation that is less disruptive" for the private sector. http://goo.gl/x05N

The Grand Bargain lives? -- Obama said he's still open to lowering the base corporate tax rate in exchange for loophole closures, something he's hardly mentioned since a meeting with biz execs in Spring 2009. (Flashback: http://goo.gl/ZA9l) Obama on Monday: "If there are ideas whereby we can lower corporate tax rates in a way that does not massively add to our deficit, but instead revolves around tax loopholes ... that is something that we would be very interested in and we think could eliminate uncertainty."

TARP ends, econ bloggers look back...

Ezra Klein argues that Obama would have done better politically to push for finreg reform as soon as he got into office, when the public was seething over bailouts. http://goo.gl/atZv

Noam Scheiber finds that Obama had only one other option other than embracing it, which would have been to reject it. http://goo.gl/0QFS

Looking past the politics, Daniel Indiviglio argues that TARP worked. http://goo.gl/UY73

TARP-booster Rep. Barney Frank is facing tougher-than-expected race. WSJ: http://goo.gl/jAJD