Fed Chief: No Redux Of '70s Economic Gloom

Bernanke Says Staglation Unlikely But Risk Of Rising Inflation Complicates Central Bank's Job

(CBS/AP)  Federal Reserve Chairman Ben Bernanke told Congress Thursday that the nation is "not anywhere near" the dangerous stagflation situation that prevailed in the 1970s.

With the economy slowing and inflation rising, fears have grown that the country could be headed for the dreaded twin evils of stagnant growth and rising prices known as "stagflation."

"I don't anticipate stagflation," Bernanke told the Senate Banking Committee.

Still, high energy prices and rising inflation do complicate the Fed's job of trying to keep the economy growing and inflation contained, Bernanke acknowledged.

High energy prices are creating "inflationary stress," Bernanke said. And, that is "complicating" the Fed's work in terms of shoring up the economy, the Fed chief said.

President Bush, at a news conference Thursday, noted the slow economic growth but said the nation isn't headed into a recession.

He rejected calls for additional stimulus efforts, instead advising patience. "Why don't we let stimulus package one, which seemed like a good idea at the time, have a chance to kick in?" Bush said at the White House.

Bernanke's testimony in the Senate caps back-to-back appearances on Capitol Hill that started in the House on Wednesday. The Fed chief's overarching economic message was the same on both days: The Fed stands ready to lower a key interest rate yet again to bolster the struggling economy.

The Fed's official mission is to fight inflation usually by raising interest rates, reports CBS News correspondent Anthony Mason. But this time there may be little Bernanke can do.

Many fear the country is hurtling toward a recession or is in one already.

The central bank started lowering a key interest rate in September. Over just eight days in January, the Fed shaved 1.25 percentage points, the biggest one-month reduction in a quarter century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting, March 18.

CBS News correspondent Bill Plante reports that Chairman Bernanke went so far today as to warn that the mortgage crisis could cause some smaller banks to fail.

Just before Bernanke testified, the government reported that the economy nearly stalled in the final quarter of last year. It grew at a pace of just 0.6 percent, a big loss of momentum compared with the prior quarter's brisk 4.9 percent growth rate.

The committee's chairman, Sen. Christopher Dodd, D-Conn., described the nation's economic situation as "very serious, if not perilous."

Dodd said: "Growth is slowing. Inflation is rising. Consumer confidence is plummeting, while indebtedness is deepening."

Bernanke indicated he is prepared to lower rates even as high oil prices heighten inflation risks.

To energize the economy the Fed cuts rates. To combat inflation, it would boost rates. Rising inflation can reduce the Fed's maneuvering room in terms of revving up a slowing economy.

"We are concerned," Bernanke said. "We are trying to balance a number of different risks against each other," he told lawmakers.

Still, Bernanke is hopeful that energy prices - and overall inflation - will moderate somewhat this year.

And, he was hopeful that the economy will turn stronger in the second half of this year, helped by the Fed's rate reductions and a recently enacted rescue package of rebates for people and tax breaks for businesses.

[wardoglrs]

Milton Friedman answer''s, The problem with goverment

http://www.ideachannel.tv/

[hypnotoad72]

I''ll agree, no worries yet. But the chances of that style recession/stagflation returning appear to be rising; or starting to rise, rather.

That is the fear.

[b-easy63]

"I don''t anticipate stagflation," Bernanke told the Senate Banking Committee."

Yeah. You and Bush did not anticipate this recession either. Both of you KNEW it was coming cuz shell games can''t be played forever--but with all of the economic musical chairs--you and Bush thought the ******* would not hit the fan, until he was out of office and then the Republicans would do their best to lay the mess at the Democrat''s feet. LOL

[ov442]

No Redux like the 70s, try a redux of the 1920s/30s depression.

[ov442]

Business people are the smartest, most educated, most experienced, and most Crafty people working in any sector of this country. They literally have think tanks trying to figure out new ways to skirt laws and find loopholes and new marketing techniques and research to take US consumers for another dollar every day as often as possible. You average joes out there are sitting there not even realizing how much your daily activities have been tracked, marketed, and influenced by every company that can do it. Corporate america is at war with each other and consumers to take more dollars away from consumers. our GDP is 70% or more based on consumer spending period.
They know exactly what they are doing and what teh risks are and how to flatten those risks, and how to make it look like they are being hammered when in fact they arent. Because even when they fold, all they have done is glean maximum dollars out for their owners and shareholders paid them out, Gave themselves golden parachutes, fired all the employees, locked the doors and head to the cayman islands.

The only thing they MAY not have counted on is how difficult it would be to OFFload all the inventory of homes they now own to get cash rolling back into the coffers. Too bad for them. They''ll eventually make their money back but oh well.

[ov442]

The banks make plenty of cash off this, they are just writing these down as losses because they keep sending all their revenue to shareholders instead of keeping it for operations incase this all happened.
They know very well the risks. you think for one second they didnt model this situation? or that they had no clue of the risks? bull shiites.
Much of the losses are by FHA backed subprime mortgages which means the lenders get paid for FHA insurance. Many of them also have PMI or MIP and get payments from them until foreclosure. As well you cant discount the amount of high interest payments so many of these people tried so hard to make and were making for awhile before foreclosure loomed.
Finally they still get the house and more often than not, its not in a slum with next to zero worth, its high priced homes over 200k.
They have assets and they will make money off of them.
This is not a big crying loss to banks. The big losers here are the consumers on both sides. But either way if you still have your house you havent lost because just like the stock market, it''ll go back up. But where are all these people going that are being kicked out? Corporate america is always happy and joyous to put people on the street... why? because it means they took em for everything they had. Which is the general idea of doing business in this country.

[payasyougo]

"...the nation is "not anywhere near" the dangerous stagflation situation that prevailed in the 1970s.
"

Today, the US economy is more driven by consumer spending than was the case in the 70s.

If consumers are cutting back spending, as evidenced by current indicators showing spending is around 2001 levels, then the economy will slow. Combined with high oil prices and the inflationary pressures that puts on everything energy touches, heating costs, fuel for production, corn for methanol, consumer costs will rise.

I''m a consumer. I''m cutting back. My data doesn''t support Bernanke''s conclusion.

[andor3]

"The decision to allow people with poor credit ratings to get loans for houses was a real nice gesture. Unfortunately, it made no business sense."

It made a lot of business sense--that was the problem: banks exploiting people for profit, and the banks are still making out on this deal, and getting government handouts on top of it.

[downsteamjim]

The decision to allow people with poor credit ratings to get loans for houses was a real nice gesture. Unfortunately, it made no business sense. Changes that allowed this are never discussed. Of course, good liberal ideas that fail are never discussed.

[andor3]

l8c6 said: "If they can just stave this thing off a few more months the cons will be able to talk about the bad economy of the Obama years for the next third century."

And probably the cons will fight any recovery by any underhanded trick they can, to prevent President Obama from looking like a hero and proving the folly of the Reagan/Bush/Bush/con misadventure. In the end, I think that will just hasten their downfall and any rich or business interest that tries to obstruct the recovery will find itself exposed and kicked to the curb.

So I hope.

[Razzl]

These statements make me think less of Bernanke than any he''s made since the crisis burst upon us last Summer. To rule out the scenario which all objective facts are converging toward without a credible alternate narrative based on the types of facts he should have exclusive access to as Fed chairman makes me think he''s engaging in Bush speak; say what you want to be true and somehow nature will bend to your will...

[mcv57]

The financial markets and the world economy is man-made. As everyone knows, GREED has re-surfaced the historical cycle of the rich - Dr. Ravi Batra. The cycle of nature has been postponed by manipulation -politics.

The truth is that the inminent economic collaspse is mainly delayed by American Corporate blackmail - foreign funds/ investment to America in order to prop-up its markets (China owns most of U.S. Govt bonds). Once the world refuses to pay ramson, the Greater Depression will begin. Until then, the world must carry the American Market''s vices of corruption and greed.

[l8c6]

Guess what. History is repeating itself. Read all the posts here and everywhere else. You can see that the same old Doom and Gloom Democrats what to do it again. And this is the new "Change for America" They promised us.

Posted by demslie

Yes, and the lunar eclipse was a sign too I suppose.

Reagan was the big lie. He started an economic meth orgy that you pigs will attempt to blame on the left once this country finds itself strung out on a another great republican economic disaster.

You ignorant right winger lying sack of sh*it. The real history is that this country was still pulling out of it''s worst military involvement to date and Nixon had taken a huge dump on the executive office where Di*ck Cheney hovered in the shadows.

[demslie]

If your read what the FED Chairman said it was "No Redux Of ''70s Economic Gloom". In the 70''s the Democrats owned the White House, Congress, the Senate and most State Capitals. We had the worst doom and gloom in our History. The News coined a phrase for it, "The ERA of the Malaise". We had just surrendered to the Communists in Vietnam. The stock market was bankrupt, and The Carter Administration was impotent to do anything about the Hostages held by terrorists in IRAN for over a year. The Doom, Gloom and Negative that is normally associated with Democrats became standard operating procedure for our country. It was not until Reagan came along, that we find a reason to smile again. Guess what. History is repeating itself. Read all the posts here and everywhere else. You can see that the same old Doom and Gloom Democrats what to do it again. And this is the new "Change for America" They promised us.

[l8c6]

When the economic future of the country depends on the charisma and confidence in leadership of Bush and Bernrnke, well it is not a pretty thought.

Posted by andor3

If they can just stave this thing off a few more months the cons will be able to talk about the bad economy of the Obama years for the next third century.

[trillion1]

And the captain of the Titanic said "We''re just taking on a little water."

[king77shaw]

the scary part is that we''re facing recession (or worse) seven years into a "war" -- war has been historically used to end recession, yet here we are in an endless war on terror and our economic situation is "bleak" -- what we''re not being told is that without this war the economic outlook would be DIRE - this is why there is little real effort from either party to end the Iraq war - it is keeping their house of cards afloat, the illusion intact ... without this endless war on terror, we would already be in a depression ... the American economy has been thoroughly gutted -- the only thing holding it together is war - it is an illusion -- with all the questions, propaganda, cover-ups and myth surrounding 9/11, one thing is for certain - it was an economic necessity ...

[olebd]

What a feeble attempt to inject (neo)CONfidence into we the people.

[lochlan-2009]

Let''s try this again,

One question, what is the global worth of the $40billion that Exxon made last year? What is it going to be worth when the white house Dems. get back in office and bring the value of the dollar back?

See the big picture yet?

[olebd]

Everything''s good, everything''s fine. Pay no attention to the monkies behind the curtain. Get out your monetary plastic vibrator and stimulate the economy by buying new, big ticket items.

Gee, if everything is pretty good like they say, why am I sweating so much every month when I go to pay bills after spending another $600 in groceries and $480 in gas and notice that I paid over $100 more for necessities compared to the month before? What is the new buzz word for my situation?