Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee on Thursday that not raising the debt ceiling would cause the deficit to rise and have calamitous effects on the economy.
In addition, Bernanke presented his Monetary Policy Report, according to CSPAN, and described steps the Federal Reserve might take in response to possible slower economic growth.
“As he did during yesterday's House Financial Services hearing, he restated his opinion that spending cuts in a deficit reduction deal should be structured so that they do not hurt the economy in the short term,” the network reported.
Bernanke also offered a sharp warning during his testimony that a "huge financial calamity" would occur if a deal on the debt ceilling was not reached.
A number of pundits and investment managers criticized Bernanke after testimony before the House Financial Services on Wednesday. Bernanke floated the possibility of another round of stimulus in comments to House members and clashed with Rep. Ron Paul, R-Texas, over whether or not gold is to be considered money (Bernanke said it should not).
Few were more passionate than controversial Euro Pacific Capital CEO and former Senate candidate Peter Schiff.
“In one of his most transparent performances to date, Fed Chairman Ben Bernanke proves once again that he is either a buffoon or a liar,” Schiff wrote in commentary emailed to reporters. “In addition to claiming that his money-printing has helped the U.S. economy, he told Congress that gold is not money, that people buying gold are not concerned about inflation, and that the external value of the dollar has no influence on its domestic purchasing power.”
By claiming that gold is not money, “the Chairman demonstrates his ignorance of much of monetary history,” Schiff continued. “He told Congressman Ron Paul that he had no idea why central banks hold gold, before speculating that it might have something to do with tradition. Yes, traditionally gold is money, which is precisely why central banks hold it. And gold is money because central bankers like Mr. Bernanke cannot be trusted with a paper substitute. “Bernanke further disputes the facts by claiming that the only reason people are buying gold is political uncertainty. My advice to the Chairman is to ask the people who are actually buying it,” he added.
As on Wednesday, Bernanke responded to senators’ concerns on Thursday by saying that “the Fed remains prepared to respond to changes in monetary policy, outlining the options including more guidance on interest rates, more securities purchases along with other attention to specific financial programs,” according to CSPAN. He added that the Fed is ready to provide aid if there are new shocks to the global economy or the financial system.