MercoPress. South Atlantic News Agency

Bernanke warns US government debt relative to GDP is “clearly unsustainable”

The Fed chief admits recovery but “frustratingly slow”

The growth of US government debt relative to GDP is “clearly unsustainable”, Federal Reserve Chairman Ben Bernanke said in a congressional testimony.

“To achieve economic and financial stability, US fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time,” he told members of the House Budget Committee.

Appraising the current state of the economy, Bernanke said that while “conditions have certainly improved ... the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed”.

The Fed chief also cited possible risks to the global economy from the slowdown in Europe and the ongoing euro-zone debt crisis.

“We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the US financial system and the economy,” he said, responding to lawmakers' concerns about possible contagion from Europe's woes.

The US will run a budget deficit of 1.1 trillion dollars this year, equivalent to 7% of GDP, according to estimates from the non-partisan Congressional Budget Office.

Bernanke also committed Federal Reserve support to prevent Europe's financial crisis from damaging the US economy.

“We are seeing signs that some of the uncertainty dampening US business investment, including European banking woes, might be waning”, said the Fed chief but cautioned it was far too soon to say whether the United States could remain unscathed.

“Risks remain that developments in Europe or elsewhere may unfold unfavourably and could worsen economic prospects here at home,” Bernanke told lawmakers in prepared remarks.

“We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy.”

Bernanke maintained a cautious tone on the U.S. outlook following a decision at a Fed policy meeting last week to announce that interest rates are likely to remain near zero until at least through late 2014.

At a news conference after that meeting, Bernanke indicated the central bank was considering additional monetary easing, but he offered no fresh hints of such plans in his testimony.