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Federal Reserve Chairman Ben Bernanke warned Congress on Wednesday that it must act promptly to narrow the yawning federal budget deficit or risk losing the confidence of financial markets.

"In order to make lenders willing to continue to finance us at reasonable rates, we do have to persuade them that we are serious about returning to a more balanced fiscal situation going forward," Bernanke told the House Budget Committee.


"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."


Separately, the Fed chief reiterated his forecast for a tepid start to economic recovery later this year, a view backed by mixed reports Wednesday on the service industry and business employment.


The deficit has swelled, largely as a result of the $787 billion stimulus package, the $700 billion Wall Street rescue plan and lower tax revenues during the recession. A rising federal debt spooks lenders and drives up interest rates. Bernanke partly blamed the red ink for recent increases in yields on long-term Treasury notes and fixed-rate mortgages.


Noting that tax increases can dampen a recovery by eroding consumer buying power, Bernanke suggested Congress must look closely at paring entitlement programs — a politically explosive idea. Social Security and Medicare, he said, will rise to 12.5% of the economy by 2030, up from 8.5% today.


"The fundamental question that Congress, the administration and the American people face is how large a share of the nation's economic resources to devote to federal government programs, including entitlement programs," he said



Friday, 20 Aug 2010 02:54 PM


Layoffs are back, and that's bad news for the fragile economic recovery.


New applications for unemployment benefits hit a nine-month high last week — a spike that suggests private employers may shed jobs this month for the first time this year.


Workers are losing construction jobs in Georgia and manufacturing jobs in Indiana. Some of the layoffs are coming as stimulus money dries up and public works projects come to a halt. Government employees are being let go, too, as states and cities grapple with budget crises.


Without more jobs, consumers will not feel secure enough to spend much money, further slowing the economy. The grim outlook has economists lowering their estimates for growth in the second half of the year. And on Thursday it led to a sell-off on Wall Street led by investors worried that the United States could tumble back into recession.


"Today's news on the economy has been nothing but awful," Paul Ashworth, an economist at Capital Economics, wrote in a note to clients. "The recovery is clearly slowing."


The Labor Department announced Thursday that initial claims for jobless benefits rose by 12,000 last week to 500,000 — the highest level since November and the third straight increase.


As the economy recovered from the worst downturn since the 1930s, jobless claims declined steadily from a peak of 651,000 in March 2009 to a low of 427,000 in July before rising steadily over the past six weeks. In a healthy economy, jobless claims usually drop below 400,000.


"This is obviously a disappointing number that shows ongoing weakness in the job market," said Robert Dye, senior economist at the PNC Financial Services Group.


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Taken on August 20, 2010