HispanicBusiness

The economic policies implemented by President Barack Obama's economic team are at a crossroads. Last week, Federal Reserve Chairman Ben Bernanke, in a speech described as gloomy, at the Economic Club of New York, identified constrained bank lending and the weak job market, as two factors that are preventing a more robust expansion.

On the job market, Chairman Ben Bernanke said that the best that can be said now is that unemployment is getting worse more slowly, anticipating that next year it will continue declining slowly. However, Chairman Bernanke also admitted that inflation seems likely to remain subdued for some time.

This last expectation gives ground to those who hold that, given the absence of an inflationary menace, the government has margin to do more to fight unemployment, by promoting the approval of another stimulus package.

However, there is opposition among those who are against increased deficit spending. Since there is no inflationary threat in sight, the argument is that high levels of public debt will end up generating a loss of confidence in the US economy. In its turn, this will lead to a crash of the dollar exchange rate and to a consequent increase in interest rates, which will stop the incipient expansion.

For the time being, the debate in Washington is focused on health care reform. But as soon this debate is over, the Administration will have to confront the trade off between another stimulus package or the reduction of the fiscal deficit.

Isaac Cohen is Former Director, Washington Office of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). He also serves as a commentator on economic and financial issues for CNN en Espanol TV and radio.