Wednesday, June 3, 2009

Large budget deficit is a major threat to long term financial stability of the U.S.

American government has offered a big stimulus package to revive the country’s economy but that stimulus will cause serious trouble in the long run. In his speech towards the House Budget Committee, Ben. S. Bernanke, Chairman, Federal Reserve, warned that the huge budget deficit poses a major threat to the country’s financial stability and policy makers have to start planning to restore “the fiscal balance.”

Yields on the ten year US Treasury bonds increased by 1 percentage points since the Federal Reserve announced to buy long term treasury bonds worth $300 billion. On June 2, 2009 the bonds yielded a return of 3.61% which came down to 3.54% on June 3, 2009. After Barack Obama became the President, the US government offered a stimulus package of $800 billion. It also tookover Fannie Mae and Freddie Mac which increased government spending.

House Majority Leader, Steny Hoyer also agreed with Bernanke and said that the house is going to pass a legislation to cut spending in one category. President Barack Obama promised to halve the budget deficit by the end of his term and even if he becomes successful, the government will continue with large deficit in future.

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