Bernanke is Catching on: Says U.S. Must Address Soaring Debt

Mr. Bernanke said the U.S. will ultimately have to decide between raising taxes, cutting Social Security or Medicare, or less spending on everything from education to defense.




By LUCA DI LEO



DALLAS—The U.S. must start to prepare for challenges posed by an aging population with a credible plan to gradually reduce a soaring public debt, Federal Reserve Chairman Ben Bernanke said Wednesday.



Health spending is set to increase over the long term as the U.S. population grows older, posing challenges to the country's already strained finances, the Fed chief warned.





Meanwhile, Fed Bank of New York President William Dudley said Wednesday that the damage caused by financial-market bubbles should bring about a sea change in the way the central bank acts, with the Fed needing to move toward active efforts to reign in financial market excess.



"There is little doubt that asset bubbles exist and they occur fairly frequently," and when they burst the economy frequently suffers, Mr. Dudley said. While it can be difficult to discern the existence of a financial-market bubble, "uncertainty is not grounds for inaction" on the part of central bankers, Mr. Dudley said.

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Mr. Bernanke, speaking at a Dallas Chamber of Commerce event, said that "unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth."

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