Bernanke says deficit is the price of growth

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Alan Beattie
Financial Times
March 4, 2009

Swelling fiscal deficits are a necessary evil in the short term as the price of boosting economic growth, Ben Bernanke said on Tuesday.

[efoods]Addressing the Senate budget committee, the Federal Reserve chairman predicted that a joint Fed-US Treasury programme to support troubled consumer lending markets would deliver immediate boosts to lending.

Separately, Tim Geithner, US Treasury secretary, defended the proposed White House budget against claims of profligacy, telling a congressional committee that there was “no alternative” than to pursue aggressive campaigns of fiscal stimulus and financial sector rescue.

In his testimony in the Senate, Mr Bernanke said that, while the forecast federal deficit of $1,750bn this year was unfortunate, the alternative would have been worse.

“Of course, all else equal, this is a development that all of us would have preferred to avoid,” he said. “But our economy and financial markets face extraordinary challenges, and a failure by policymakers to address these challenges in a timely way would likely be more costly in the end.”

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