WASHINGTON, Feb 2: The US Federal Reserve chairman Ben Bernanke told Congress on Thursday that achieving a sustainable budget and debt balance should be a “top priority” for the government.

Bernanke also said the US economy has strengthened but still remains vulnerable to the shocks and the eurozone turmoil, and that if things turn worse the Fed would “take every available step to protect the US financial system and the economy.”

Bernanke warned in testimony to the budget committee of the House of Representatives that the US fiscal trajectory remains troublesome, in both the medium and long terms.

Even after sharp budget cutting by the Obama administration, based on current US taxation and spending policies, the budget gap and the ratio of country’s debt to the size of the economy will rise rapidly.

“This dynamic is clearly unsustainable,” Bernanke said.

“To achieve economic and financial stability, US fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. Attaining this goal should be a top priority.”

He cited bond market turns against Europe’s most indebted governments, sending their debt costs skyrocketing, as an example of what the United States possibly faced with its mounting borrowings.

“As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy,” he said.

“We can be sure that, without corrective action, our fiscal trajectory will move the nation ever closer to that point.”

He said the country in the short term needs to balance both growth-friendly and debt-reduction fiscal policies, but said that as long as debt and the fiscal deficit remain large the country is at risk to external shocks.

“High levels of debt also impair the ability of policymakers to respond effectively to future economic shocks and other adverse events.”—AFP