In a Tuesday speech at the New York Economic Club, Bernanke described fiscal cliff as a “substantial threat” to the country’s economic recovery and urged US lawmakers to put aside partisan political rivalries to avert the massive financial impact on the nation’s already slow economy.
‘‘Uncertainties about the situation in Europe and especially about the prospects for federal fiscal policy seem to be weighing on the spending decisions of households and businesses as well as on financial conditions,’’ he said, adding, ‘‘Such uncertainties will only be increased by discord and delay.’’
Citing several outside economic assessments on the enormity of the ensuing tax hikes and spending cuts, Bernanke said ‘‘a fiscal shock of that size would send the economy toppling back into recession.’’
This is while the Obama administration and Congress are still negotiating over an agreement to reduce the government's massive budget deficit, which has exceeded USD 1 trillion for a fourth consecutive year.
The last time the debt limit was about to be reached, Republican lawmakers in the US Congress waited until the very last minute before deciding to raise the limit.
Saying "the deficit is on an unsustainable path," the Fed chairman further added, ‘‘As you will recall, the threat of default in the summer of 2011 fueled economic uncertainty and badly damaged confidence, even though an agreement ultimately was reached.’’
‘‘A failure to reach a timely agreement this time around could impose even heavier economic and financial costs,” he warned.