ByÂ Patrice Hill,Â The Washington Times
TheÂ Fed chairman said at a news conference that â€” to the contrary â€” cuts in spending at the state and local level, combined with the withdrawal of stimulus spending at the federal level, contributed to the slowdown in job growth and economic growth seen this year.
â€œI donâ€™t think that sharp, immediate cuts in the deficit would create more jobs,â€ he said. â€œDeficit reduction is at best neutral for job-creation.â€
State and local governments have eliminated close to a half-million jobs since the recession, according to theÂ Bureau of Labor Statistics. Those job losses originally wereÂ fed by gaping budget gaps in most states and now are beingÂ fed in part by the loss of federal stimulus funding. The government job cuts have partially offset robust job growth in the private sector this year of close to 200,000 a month on average.
To avoid generating more job losses,Â Mr. Bernanke stressed thatCongress and theÂ White House should aim to reduce the deficit gradually over several years particularly through reforms in entitlement-spending programs such asÂ Medicare and Medicaid which have been growing rapidly and pose the greatest threat of destabilizing the governmentâ€™s finances.
â€œThe most effective way to address fiscal problems is to take a long-range perspective,â€ he said.
Republicans have argued that slashing federal spending will create jobs by reducing the government burden on the private economy. That argument has resonated in opinion polls which show public support for taking that approach. But the party dogma runs counter not only toÂ Mr. Bernankeâ€™s advice, but the counsel of most economists.
In his second-ever public press briefing following a meeting of theÂ Fedâ€™s monetary policy committee,Â Mr. Bernanke also said for the first time that an explosion of the European debt crisis could trigger another global financial rout that would pull down the U.S. economy. He said theÂ Fed is prepared to react with more easing measures if that happens.
Greeceâ€™s parliament on Tuesday averted the possibility of an immediate default by upholding the Socialist government and its economic-austerity program in a vote of confidence. That enables the International Monetary Fund and the European Union to continue lending to the country.
But analysts sayÂ Greece most likely is headed toward a debt restructuring at some point, because its debts have become unsustainable while the austerity program has thrown the country into a deep recession.
Mr. Bernanke calledÂ Greeceâ€™s troubles a â€œvery difficult situation.â€ TheÂ Fed has surveyedÂ U.S. banks to determine how exposed they would be to a default byÂ Greece, he said, and found that mostÂ U.S. banks have little direct exposure.
To read more, visit:Â http://www.washingtontimes.com/news/2011/jun/22/bernanke-spending-cuts-wont-boost-jobs/
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