Bernanke warns on America's debts

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The Independent Online

The US Federal Reserve chairman, Ben Bernanke, joined those calling for a "credible plan" to pay down America's debts yesterday, telling a bipartisan commission that, in the absence of further policy actions, "the federal budget appears set to remain on an unsustainable path".

"Given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time," Mr Bernanke told the 18-member National Commission on Fiscal Responsibility and Reform, a White House-backed initiative tasked with finding ways to ease the country's fiscal woes. The US budget deficit stood at $1.4 trillion (£9,000bn) in 2009 – or 10 per cent of the American economy – as government interventions during the financial crisis took their toll. The country's top monetary policy maker went on to warn that high borrowings could imperil the recovery currently taking root.

"Increasing levels of government debt relative to the size of the economy can lead to higher interest rates, which inhibit capital formation and productivity growth – and might even put the current economic recovery at risk," he said, as world markets veered sharply lower amid concern about Greece and Portugal.