Friday, April 9, 2010

Federal Reserve Chairman Bernanke: How America's Aging Population Will Impact the Budget Deficit

On April 7, Chairman of the U.S. Federal Reserve Ben Bernanke gave a speech on Economic Challenges: Past, Present, and Future, in which he touched on the events that led us into the recession and also provided insight about the road ahead.

Here's what he had to say about the impact of America's aging population on the budget deficit:
"Two interrelated economic challenges our nation faces: meeting the economic needs of an aging population and regaining fiscal sustainability.

The U.S. population will change significantly in coming decades with the combined effect of the decline in fertility rates following the baby boom and increasing longevity. As our population ages, the ratio of working-age Americans to older Americans will fall, which could hold back the long-run prospects for living standards in our country. The aging of the population also will have a major impact on the federal budget, most dramatically on the Social Security and Medicare programs, particularly if the cost of health care continues to rise at its historical rate. Thus, we must begin now to prepare for this coming demographic transition.

Inevitably, addressing the fiscal challenges posed by an aging population will require a willingness to make difficult choices. 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."
In addition, Bernanke said this about housing more generally:
"We have yet to see evidence of a sustained recovery in the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures. The commercial real estate sector remains troubled, which is a concern for communities and for banks holding commercial real estate loans."

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