Our guest blogger is Michael Linden, the Associate Director for Tax and Budget Policy at the Center for American Progress Action Fund.

Federal Reserve Chairman Ben Bernanke is causing a bit of a media tizzy today with his latest speech, in which he warns that, “unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth.”

The Chairman is not wrong. Consistently running huge budget deficits with no prospect of ever closing the gap between spending and revenue can have enormous economic consequences. Interest rates would eventually rise, painful inflation would eventually take hold, and an ever larger share of the federal budget would be spent just in the service of paying interest on a bulging debt. This is definitely a situation that we want to avoid.

But don’t confuse a warning about potential future problems with an alarm bell signaling imminent danger. The Chairman is correct when he says that we need to solve our long-term deficit problem, be he made a bunch of other points that are much more relevant right now, and also happen to be right on the money:

1. “[A] sharp near-term reduction in our fiscal deficit is probably neither practical nor advisable.”

Right on, Mr. Chairman. Don’t let anyone tell you that this year’s deficit is an economic problem. It isn’t. In fact, this year’s deficit, and last year’s, is a big reason why the economy is now slowly recovering.

2. “[F]or the near term, inflation appears to be well controlled [and]… [i]nflation expectations, as measured in the financial markets or in surveys, appear stable.”

Correct. Inflation scare-mongers want us to believe that we are on the verge of becoming Zimbabwe, but the reality belies their dire predictions.

3. “To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.”

Bull’s-eye. Our long term deficit is the product of an aging population, rising health care costs and a persistent, pernicious campaign to cut taxes (especially for the wealthy) without paying for it. Getting the budget back into balance is going to mean reducing some spending, but it’s also going to mean higher revenues. Anyone who says we can balance the budget entirely by cutting spending isn’t actually interested in solving the problem. They’re just trying to score political points.

Finally…

4. “History has demonstrated time and again the inherent resilience and recuperative powers of the American economy. Our country…has surmounted difficult challenges in the past. I do not doubt that we can do so once again.”

Amen. The challenge of bringing our budget back onto a sustainable path is not insurmountable, even after eight years of remarkable fiscal mismanagement. And Bernanke is also right that meeting this challenge is going to mean making some “difficult choices.” But making difficult choices doesn’t mean economic ruin. The federal government could certainly stand to cut some fat, just as the very richest Americans could certainly stand to pay a little more in taxes.

Yesterday, I highlighted this report from the Pew Fiscal Analysis Initiative, which shows that 44 percent of the unemployed workers in America have been jobless for six months or longer. This is the highest percentage since World War II. But the plight of the long-term unemployed is not the only problem with the labor market (which is still in dire straits, even with last month’s encouraging addition of 162,000 jobs).

As this new report from the Economic Policy Institute (EPI) reveals, the jobless rate for young adults has also been at unprecedented levels. EPI found that “since the start of the recession in December 2007, young adults have attained the highest unemployment rate on record (since 1948)…Between December 2007 and January 2010, the unemployment rate for young workers increased 7.1 percentage points.”

And the picture gets even uglier for young minority workers. Here’s the unemployment rate for 16-19 year old workers, broken down by race:

And here’s the rate for 20-24 year olds:

Being unemployed at a young age has an impact that will last the rest of a worker’s life. Research has shown that each missed year of work translates into “2 percent to 3 percent less earnings each year thereafter.” In fact, college students who graduated during the 1982 recession were still earning less than students who graduated into a strong economy ten years later. As the Washington Post reported, the current generation of young workers “might be the first generation that does not keep up with its parents’ standard of living.”

Fortunately, this is not a problem of which people are unaware. Today, the White House threw its support to a House-passed bill that aims to create summer jobs, building on the economic stimulus package passed last year. “We have to do more,” said Rep. Barbara Lee (D-CA). “It’s really important that we get the resources to the communities as soon as possible.”

Of course, efforts to address this problem could have been underway already, if Senate Republicans hadn’t scuttled a summer jobs bill with a budget technicality last month.

Last week, it was the Office of the Comptroller of the Currency and Sen. Richard Shelby (R-AL). This week, it is evidently Bank of America’s turn to break with the rest of the financial services industry and lend its support to the creation of an independent Consumer Financial Protection Agency (CFPA). American Banker reported:

Bank of America Corp. is breaking ranks with other large banks and agreeing to support beefed up consumer-protection provisions in regulatory reform legislation, several sources said Wednesday…Until now, B of A has officially stayed neutral on a consumer protection unit but it has been fiercely opposed by the banking industry, which argues it could write rules that conflict with safety and soundness standards. But at a meeting with several community groups on Wednesday, top B of A executives said they were ready to give a consumer protection agency their support under certain conditions.

And therein lies the catch. While it is helpful to have a high-profile bank break with the rest of the industry and deliver one more blow to the false claim that consumer protection necessarily undermines bank safety and soundness, BofA, like Shelby and the OCC, seems to be positioning itself to make demands on other fronts in exchange for concessions on consumer protection.

So what does BofA want? Well, according to one of its spokesman, “we support the idea of a consumer protection entity, consistent with the principles of federal preemption.” The “principles of federal preemption” would seriously blunt the push for strong consumer protection.

Complete federal preemption would mean that nationally chartered banks, like BofA, would be immune from state consumer protection laws that go further than those set at the national level. As envisioned by the Obama administration, federal regulations would be a floor, and not a ceiling, for regulation, and if the states see a particular problem on the ground, they would be able to react. Treasury Secretary Tim Geithner reiterated this last week, saying that states will have a “crucial role” in policing predatory lending going forward.

During the housing bubble’s buildup, many states tried to enforce tougher rules against subprime lenders, only to be preempted by federal regulators under the Bush administration. BofA’s stated policy outcome would set preemption in stone, so that banks wouldn’t even have to seek out a case-by-case exemption (as they would under both the House and Senate regulatory reform bills). Incidentally, full federal preemption is the same thing that Comptroller of the Currency John Dugan said he would push for, in announcing the OCC’s support for a CFPA.

All of this support suddenly appearing for the CFPA seems to confirm that these groups see the writing on the wall, know that some sort of consumer protection entity will come into being, and want to throw their support to it in return for weakening its powers. Senate Banking Committee Chairman Chris Dodd (D-CT) would do well to not bow to these demands.