In questions to Bernanke, Gregg focuses on the long-term

BERNANKE

New Hampshire Union Leader

Jillian Jorgensen

Boston University Washington News Service

March 3, 2009

WASHINGTON— At Tuesday’s Senate Budget Committee hearing Ben Bernanke, chairman of the Federal Reserve, was grilled by most senators on the government bail-out of AIG. . But Sen. Judd Gregg, R-N.H, wanted to focus on entitlement reform and the long-term consequences of what he characterized as the massive government spending in President Barack Obama’s proposed budget.

“The budget, as it’s proposed, essentially nationalizes all income over $250,000, nationalizes health care, nationalizes student loans, we’re in the process of nationalizing our banking system, and in addition it creates a national sales tax on the production of energy,” Gregg, the top Republican on the committee, said in his opening statement..

“It’s a real movement of our government to the left and down the road of sort of France,” Gregg said in an interview after the hearing.

Gregg said he did not ask Bernanke about the latest bailout for insurance giant American International Group because of time constraints and what he said were more pressing issues.

“I had five minutes, and I think everybody else was covering it ad nauseam because it was a way to get a press release and get coverage,” he said.

AIG the struggling insurance conglomerate, received another $30 billion from the Treasury Department and the Federal Reserve Bank Monday – marking the fourth time the company has taken taxpayer money. AIG has reported $100 billion in losses for 2008, the largest losses of any U.S. company in history.

“The amount we’re spending on AIG isn’t like what we’re spending on the stimulus package, which we’ll never get back,” Gregg said, because the government has purchased AIG assets that have value. When the economy rebounds, the government should be able to recover its investment, he said.

“It’s still an obscene amount of money being spent to try to stabilize a situation that never should have occurred,” he added.

During the hearing, Gregg asked Bernanke if a government of the size proposed in the Obama Administration’s budget could be sustained and how it would affect the value of U.S. currency and the ability of the country to sell its debt.

In response, Bernanke said: “The president has proposed a number of ambitious programs… I think it’s going to be up to Congress to figure out in terms of the substance of those programs, whether they are achieving social and other objectives that Congress wants to achieve. That’s really not my place.”

“But your place is to protect the value of the dollar,” Gregg interrupted.

“My concern here, as I expressed, was that there needs to be fiscal sustainability,” Bernanke replied.

Gregg also pressed Bernanke on the issue of entitlements, such as Social Security and Medicare, asking whether the government would be able to tell the international community the dollar was strong unless it took action in the face of the coming retirement of the Baby Boom generation.

“It’s clear that to in order get control of the overall budget situation, we’re going to need to look at entitlements,” Bernanke said. “If we don’t get a sustainable fiscal situation, and deficits continue in large amounts for a long period, then it will become more difficult to sell our debt and interest rates will rise, and it will be counter-productive.”

After the hearing, Gregg said he thought Bernanke understood that “unless we get the fiscal house of this country in order, over the long run, we’re going to have very serious problems.”

“He’s clearly said that after we get by this period, when we’ve had to use massive amounts of federal liquidity, tax dollars” to try to turn around the economy, “we’ve got to figure out how to get that debt under control, and the deficits down. And the problem is the Obama proposals do just the opposite,” Gregg said.

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