Fed Throws More Cold Water On Economy

Chairman Bernanke Admits "Numerous Difficulties" And "Significant Challenges" Face U.S.

(CBS/AP)  Federal Reserve Chairman Ben Bernanke told Congress Tuesday the fragile economy is facing "numerous difficulties" despite the Fed's aggressive interest rate reductions and other fortifying steps.

At the same time, Bernanke, testifying before the Senate Banking Committee, sounded another warning that rising prices for energy and food are elevating inflation risks. This problem looms even as officials try to cope with persistent strains in financial markets, rising joblessness and housing problems.

The situation, he said, poses "significant challenges" for Fed policymakers as they try to chart the best course for keeping the economy growing, while making sure inflation doesn't dangerously flare up. All the economy's problems, including slumping home values, which threaten to make people feel less wealthy and less inclined to spend in the months ahead, represent "significant downside risks" to economic growth.

Over the rest of this year, the economy will grow "appreciably below its trend rate" mostly because of continued weakness in housing markets, high energy prices and tight credit conditions.

As Bernanke spoke, President George W. Bush addressed the economy at a press conference Tuesday.

The president urged lawmakers to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the U.S. financial system to be "basically sound."

On Wall Street, stocks slumped. The Dow Jones industrials were down around 50 points, after suffering steeper losses earlier in the morning.

The day's other big financial news was General Motors Corp. announcing it will lay off salaried workers, cut truck production, suspend its dividend and borrow $2 billion to $3 billion to weather a severe downturn in the U.S. market.

GM said the moves will raise $15 billion to help cover losses and turn around its North American operations, including $10 billion from internal cost-cutting and $5 billion from selling some assets and borrowing against others.

"In short, our plan is not a plan to survive. It is a plan to win," GM Chairman and CEO Rick Wagoner said in a broadcast to employees.

Bernanke's testimony comes just two days after the Fed and the Treasury Department came to the rescue of mortgage giants Fannie Mae and Freddie Mac, offering to throw them a financial lifeline.

The Fed chief was later joined by Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Chris Cox, who were summoned to detail the rescue plan.

The two companies hold or guarantee more than $5 trillion in mortgages - almost half of the nation's total. The Bush administration is asking Congress to temporarily increase lines of credit to Fannie and Freddie and to let the government buy their stock. The Fed has offered to let the companies draw emergency loans.

The pledges of aid have raised concerns about the government's role in such financial problems and the risk to taxpayers.

Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman, called the plan "unprecedented."

Dodd said the rescue raises serious questions "about the nature of the economic crisis facing our nation, about the ability of these proposals to address this crisis effectively, and about the burden that the American taxpayer potentially is being asked to carry."

Paulson said that if the government extends any financial backing to the two institutions it will be done "under terms and conditions that protect the U.S. taxpayer." He didn't provide details.

Sen. Richard C. Shelby of Alabama, the panel's senior Republican, cautioned, "I fear that we're sitting on a financial powder keg."

On the economic front, inflation has remained high and "seems likely to move temporarily higher in the near term," Bernanke warned.

Indeed, before Bernanke delivered his twice-a-year comprehensive economic assessment to Congress, the Labor Department reported wholesale prices jumped 1.8 percent in June. That left inflation rising over the past year at the fastest pace in more than a quarter-century.

"Given the high degree of uncertainty" about the Fed's economic outlook, Fed policymakers will need to carefully assess incoming information about inflation and economic growth, he said.

The Fed in June signaled an end to its nearly year long rate-cutting campaign because of growing concerns about inflation. Bernanke kept up his tough anti-inflation talk on Tuesday but stressed many other problems that could short circuit economic growth. He seemed to be keeping his options open in terms of rates. Given all the risky cross currents, economists believe the Fed will leave rates alone when they meet on Aug. 5.

Righting wobbly financial markets is key to getting the economy back on track, he said.

"In general, healthy economic growth depends on well-functioning financial markets," Bernanke said. "Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority," he said.

But the heart of the economy's troubles is still housing, reports CBS News business correspondent Anthony Mason.

When asked by Sen. Robert Menendez, D-NJ, if he could predict when the housing market would reach rock bottom, Bernanke could not.

"I have to say there's uncertainty about the equilibrium level that house prices will reach."

Strengthening regulatory oversight of Fannie and Freddie, Bernanke said, is "job one." Congress is moving ahead on a broad housing rescue package that includes provisions to tighten regulation over the two companies. Bernanke said legislative efforts to help stabilize the housing market - the biggest threat to the economy - are of vital importance.

Bernanke, in the first day of back-to-back appearances on Capitol Hill, said investors are nervous in general because of the cloudy outlook for the economy and credit conditions, feeding a vicious cycle that can be hard to break.

"Many financial markets and institutions remain under considerable stress, in part because the outlook for the economy and thus for credit quality, remains uncertain."

The Fannie and Freddie troubles came on the heels of the failure of IndyMac, a big bank. "Its failure ... was inevitable," Bernanke said because the bank was weighted down by low-quality mortgages. "All banks are being challenged by credit conditions now," he said, adding that the Fed is keeping close tabs on the nation's banking sector.

And, earlier this year, a run on investment bank Bear Stearns pushed the company to the edge of bankruptcy and into a takeover by JPMorgan Chase, which was backed financially by the Fed. That was a controversial move that prompted critics to call it a government bailout, putting taxpayers money at risk.

Bernanke defended its decisions in the cases of Bear Stearns as well as Fannie and Freddie, and rebuffed claims that the government is helping Wall Street at the expense of Main Street. If problems aren't contained, they can ripple throughout the economy, hurting everyone, he said. "Financial stability is critical to economic stability."

The Fed, in new projections, now believes inflation will be higher this year than previously thought, with prices rising as high as 4.2 percent under one inflation measure.

Growth for the year will be sluggish - at best 1.6 percent growth - but not as bad as previously forecast, helped by the government's $168 billion stimulus, including rebates. The unemployment rate, which could rise as high as 5.7 percent this year, is the same as earlier projections.

[fstop100]

Keep selling out..what did you expect?
Wally Mart sells almost all Chinese goods, ships come to this country full and go back empty. We need foreign trade to mean foreign trade.

[onceagirl]

My dearly departed uncle persuaded me to put my entire cash portfoli in to Euros when it sold in the low eighty cent range..he told me that our economy was in it''s final stages of maggotville and would soon enter into a huge correction..in other words, there was nothing left for the maggots to consume. Thank you Uncle George...you saved me from the avarice and greed that has swept our nation!

[underdogus06]

dollar plumbs new low versus the euro,that means higher prices at the gas pump,higher prices at the supermarket, more unemployment,more business failures. thank you have a nice day..

[leftyintexas]

Welcome to bushland where the dollar is worthless, the national debt is the highest it has ever been, and the banks are failing. Does all this make you homesick for the good ol days for the ''Great Depression''? That too happened under a Republicon administration when there was no bank regulation. Under the bush administration there has been NO regulation of the banks. Republicons don''t believe in government regulation. How can they line their pockets with OUR money if they have government regulators looking over their shoulders watching what they are doing? Before bush leaves office, he will single handedly brought our country down to it''s knees. He has done a much better job of destroying our peoples lives than Bin Laden could have ever dreamed! Only 189 days left! Thank God!

[omega39-2009]

U.S. Stocks Brace For Big Slide

Will Bernanke let the investors take a bath or will he announce a surprise rate cut to further weaken the dollar and harm the middle class?

[tmart2000]

Things are looking good, sales are up and the american people need to quit whining and spend there money before the rich loose everything!!!!!!!!

[leftyintexas]

This is all democrats in congress fault. This all could have been easily avoided if only they will allow offshore oil drilling. Stupid liberals!

Posted by GOP_forever at 08:41 AM : Jul 15, 2008

DUMMY FOREVER! Hahahahaha!

[underdogus06]

yen up,peso up,euro up,-- the dollar down the plug hole....

[underdogus06]

The president can no longer count on the rich to defend him,they''ve abandoned the sinking yatch...

[underdogus06]

GM TO SLASH MORE JOBS..don''t hold on to your stocks hold on to your socks....

[cattlekate]

10,000 in August. 9,000 by October 29.

[docpeter-2009]

Posted by fstop100 at 08:24 AM : Jul 15, 2008, "Keep selling out..what did you expect?
Wally Mart sells almost all Chinese goods, ships come to this country full and go back empty. We need foreign trade to mean foreign trade."
__________________
Or hedge your bets. I married a Chinese National woman. I will probably get preferential treatment as one of those "round eyes."

I read the recent National Geographic report on China. Wally World sells almost 9% of the total Chinese imports. So much for their old "Made In America" campaign.
______________________

Posted by GOP_forever at 08:41 AM : Jul 15, 2008, "This is all democrats in congress fault. This all could have been easily avoided if only they will allow offshore oil drilling. Stupid liberals!"
________________________

Ending the off-shore drilling ban, imposed by GWB''s father GHWB, will not significantly impact our current siuation, neither has/will the tax rebate as should now be apparent. Off Shore drilling will take 2 to 5 years to show benefit. It is way too late for anything GWB can do to help the economy of "whiners". Something should have been done while the GOP was in court. Something other than changing the bankruptcy laws that benefit only the wealthy. Something like regulating insurance, banking, big pharma.

Want to see something that will make you sick? Want to see something about the true healthcare costs in America?
go to:

http://www.justice.org/docs/TenWorstInsuranceCompanies.pdf

[jtdev1]

Today is the day we all can kiss our 401Ks goodbye.

After 5 years of my 401k, I''ve made a total of -1.1% net (which means I''ve lost 1.1% of my investment and they''ve used my money for 5 years and I paid them 1.1%)

and that is 50% domestic stocks, 25% bonds, 10% money market...

[omega39-2009]

Most of us are in for tough times but the silver lining is that this is putting the final nails in the coffin of supply side economics and the ridiculous musings of Milton Friedman.

[truthislife1]

The media just needs stories so they will create a recession.

[whitemale08]

Listen folks,

I''m telling you, no I''m begging you to stop listening to these patriotism pastors and junkyard dogs like Glenn Beck and Rush Limbaugh give sermons on patriotism.

A sermon on patriotism is not going to prepare your for this economic hurricane that is coming.

Go now to Walmart and stock up on toothepaste, flour, rice, sugar, canned goods, anything that can be stored in a cubbard.

Your patriot pastors are not going to able to save you, you already know how to be an American, Rush and Sean Hannity just want you to take comfort in being a patriot while they keep these huge multi-hundred million dollara salaries that we all pay for through pension funds and inflation.

These folks are crooks and should be ignored at all cost. I''m dead serious about that!

[underdogus06]

This is our present day stock market crash of 1929...

[omega39-2009]

his is our present day stock market crash of 1929...

Posted by underdogus06

Don''t worry about it. Bush is giving a conference call at 9:20 and Bernanke is giving a speech at 10:00. These two geniuses will surly come through, they always do.

[omega39-2009]

WASHINGTON - Soaring costs for gasoline and food pushed inflation at the wholesale level up by a larger-than-expected amount in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.

The Labor Department reported that wholesale prices jumped by 1.8 percent last month, the biggest one-month rise since last November. Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains.

[underdogus06]

the UNITED STATES goverment is currently running a budget defecit of 1.8 billion a day, too much defecit will create a weaker dollar and cripple the US economy....

[Gary Kempf]

Investors also will be awaiting testimony from Federal Reserve Chairman Ben Bernanke, who is to appear before the Senate Banking Committee to testify on the economy.


Mr. Bernanke has written a statement he believes will best describe the state of the economy for Senate Banking Committee,

Quoting exactly, Mr. Bernanke will state;
"It Sucks"

Treasury Secretary Henry Paulson is set to appear as well. He has prepared a follow up statement to Mr. Bernanke''s. In preparation of when ask by the Senate Banking Committee to the state of the economy.

Again a direct quote, Mr. Paulson will state;

"What Ben said, it sucks"

[walt1944-2009]

IT''S ALL IMAGINARY!!!!!

That''s what "Bagdad John McBush" McCain''s "economic advisor" says! The Great Emperor Bush II says we are not in a recession, just an "econmic slowdown" (but looking more and more like a DEPRESSION!).

So relax, let the big oil companies drill all over the USSA, including your back and front yards, keep paying all those high prices and making big business rich, sell your car and ride a bike or buy a horse, and go on a diet and exercise more so you won''t have to see a doctor, provided you could afford it!

ABOVE ALL, STOP WHINNING!!!!!!

SIG HEIL, BUSH!!!!!!
sig heil, TOTALLY MORE OF THE SAME, McCain!!!!!

[ddaryl1]

the only people who are really going to get hurt are the middle class and the lower classes.

Those who are already wealthy will sell off their assets and wrap both arms around their money and do NOTHING to help out the rest of us.

They''ll put up fences and walls and keep us riff raff out.

AMERICA IS DYING, and we are about to witness how brotherly and sisterly our fellow Americans truly are.

one for all and screw the rest of ya''s... It''s the real American way

[whitemale08]

Rush and Hannity have been wrong about this economy for the last 8 years, so please stop listening to these idiots.

Trust me. Go stock up now at Walmart, hyper-inflation will accelerate with prices going up by the day even the hour in the near future.

There is nothing to turn this thing around, Fannie & Freddie was the last to go. Only Larouche''s plan will work but nobody in Washington wants to do it.

So there you have it folks, turn off the radio and stop listening to these patriotism pastors and go stock up on some food before it''s too late !!!

[ddaryl1]

Do not fall prey to artificial patriotism rhetoric that is pumped through many.

If being a patriot is sacrificing for the betterment of your country then why don''t the oil companies sacrafice profits to help reduce the straing of high oil proices on the entire country.


If being a patriot means helping your fellow countrymen then why do so many companies pay their CEO''s stupid amounts of money while contniuing a trend of reducing wages, benefits, and retirement...

There is nothing patriotic about Wall Street or the corporations that control our government. They will not hesistate to take everything from you an dput you on the street in the end...

America is dying, and it has everything to do with flow of money and greed... We are just the pawns/robots they used to build there welath...

How much longer will Americsn accept the rediculous things our government and the corps do to us.... They are selling us down a river to save themselves !!!!!

prepare yourself for hard times

[hungry1968]

This is our present day stock market crash of 1929...

Posted by underdogus06 at 09:35 AM : Jul 15, 2008




Thanks to our incompetent and immoral politicians.

[talkingham]

Another Bush "mission accomplished!" He is succeeding grandly in his goal to destroy the economy, our military and our spirit. Just what he and his daddy call the New World Order, where we and the rest of the world take our marching orders from the oil sheiks and neocons.

[fuzzybear9]

Hello America

Fuzzy what shall we discuss today ?

Fast Food is the topic of today,

and I think we''ll pick Asian Quisene, it is a world economy you know.

Ying and Yang Mac, or we could discuss
Fannie May and Freddie Mac, or we could discuss
or IndyMac and Big Mac.

anyway you choose it, you can roll up to the franchise in you chevy malibue, with no spare tire in back.

well its all apart of Reganomics I think its called the trickle down effect.

fuzzy where is this going, is it time to panick yet !

absolutely not,
the time to panick was 20 years ago.

well what can we as Americans do now.

we need to get that barb wire fence up along the Nevada state line from Mesquite to Truckee so all those bankrupt californians can`t immigrate into the U.S.

sincerely on the market Bear
Fuzzy

[whitemale08]

prepare yourself for hard times



--------------------------------------------------------------------------------

Posted by ddaryl1 at 09:52 AM : Jul 15, 2008-

Excellent post my friend,

I like the part about how Wall Street doesn''t care about America.

[leftyintexas]

jtdev1, my 401K is 100% in money market. I am not going to lose 1 cent today in my IRA.

Posted by GOP_forever at 09:33 AM : Jul 15, 2008

And a liar to boot!

[inventagod2]

Should we add a stock market crash to all the other disasters happening in BuSHAMErica?

[leftyintexas]

My stocks will be up today.

Posted by GOP_forever at 09:11 AM : Jul 15, 2008

Sure they will...because you are GOP....gob of poop.

[whitemale08]

Prepare for brown outs and black outs folks,

Because everything has to do with the bond markets.

As the stock market melts down so do your pension funds that provide the neccessary liquidity to keep power plants functioning.

This is the process of transforming a country into a 3rd world country.

We thought that these country''s skin color made them stupid and backwards and chaotic. No my friends it''s the "bond market" once Wall Street or the IMF pulls their money out of the bond market of any country then their lights and power becomes intermittent.

So there you have it folks, stock up on some candles too, you''re going to need them.

[wardoglrs]

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin

"Paper is poverty,... it is only the ghost of money, and not money itself." Thomas Jefferson to Edward Carrington,

[omega39-2009]

Hey, anyone remember Bush''s ownership society? The stock market was going to make us all rich. That''s why they sent all of our jobs overseas, us millionaires would be too busy counting our money to hold down a full time job.

[leftyintexas]

The media just needs stories so they will create a recession.

Posted by truthislife1 at 09:32 AM : Jul 15, 2008

Yeah it''s all in our heads. There is no endless war in Iraq and Afghanistan, the stockmarket didn''t lose over 3000 points in a year, there is no 2 TRILLION DOLLAR deficit, there is no weak dollar, there are no bank failures, there is no mortgage crisis, and YOU didn''t help elect an idiot to run our country into the ground. It''s all the media''s fault except for Faux News. They don''t lie. Yeah right, Moron.

[wardoglrs]

The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of [private cartel] lending institutions and moneyed incorporations.%u201D
President Thomas Jefferson (a founder of America in condemnation of present and future monopoly money power. 1743-1826)

%u201CCompetition [i.e. capitalism] is a sin.%u201D
%u201CI want to own nothing and control everything.%u201D
%u201CThe ability to deal with people is as purchasable a commodity as sugar or coffee and I will pay more for that ability than for any other under the sun.%u201D
John D. Rockefeller (Fascist cartel robber baron and promoter of the U.S. %u201CFederal Reserve%u201D Act in alliance with the Rothschild bloc. 1839-1937)

%u201CI don%u2019t care who the government is. Let me control the money and I will control the country.%u201D
Mayer Amschel Rothschild (attributed to the German godfather of the Rothschild bank cartel and grandfather to heir Lord Baron Nathaniel Mayer de Rothschild: owner of the Bank of England and a key promoter of the U.S. %u201CFederal Reserve%u201D Act. 1744-1812)

"Every citizen should be a soldier. This was the case with the Greeks and Romans, and must be that of every free state."
Thomas Jefferson

"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
Thomas Jefferson

[shingles1]

The media just needs stories so they will create a recession.
Posted by truthislife1 at 09:32 AM : Jul 15, 2008

Yup - my shrinking retirement fund is all in my head.
Assclown.

[generey]

U.S. Stocks Brace For Big Slide
Fears Of More Bank Failures Has Wall Street On Edge


Sweet. VERY sweet.

[tawpdawg11]

I can hardly contain myself. The decider will be on any minute to explain how the dems are to blame for the trainwreck that has occurred here, gathering momentum over the last eight years. Ranting about drilling all over the place while we all know the Prudhoe Bay oil is already sold overseas.

[tawpdawg11]

Dang, man....he looks and sounds like it was the wrong week to quit drinkin''

[tawpdawg11]

Here come the softballs....lucky for him this is slowpitch.....and he hires the umps.

[whitemale08]

Shut Down the Federal Reserve System !!!

Shut down this evil evil evil institution before it''s too late!!!

Thomas Jefferson would not have allowed the Federal Reserve System to exist.

Thomas Jefferson: Paper is poverty.

He was absolutely right.

When are going to get it folks? When?

Come on Republicans, Come on Democrats, Come on Independents you all know the Federal Reserve is a private cartel of evil bankers, let''s go shut these bandits DOWN !!!

[whitemale08]

Shut Down the Federal Reserve System !!!

Shut down this evil evil evil institution before it''s too late!!!

Thomas Jefferson would not have allowed the Federal Reserve System to exist.

Thomas Jefferson: Paper is poverty.

He was absolutely right.

When are going to get it folks? When?

Come on Republicans, Come on Democrats, Come on Independents you all know the Federal Reserve is a private cartel of evil bankers, let''s go shut these bandits DOWN !!!

[omega39-2009]

The Dow was -157 when he started talking, now down to -184.

[leftyintexas]

leftyintexas, thats actually true. 100% money market as of last year.

Posted by GOP_forever at 10:18 AM : Jul 15, 2008

You are sooo full of it! Nothing you say is believable...except you are a GOP. First it''s stocks you''re in and they are ALL doing great! Then it''s gold you''re in and it''s doing great! Now you are 100% into money markets, all in one day. Are you sure you don''t work for Faux News? ....We make it up...You decide.

[generey]

George JUST said that our economy is still strong. ROFLMAO. People are so stupid.

[tawpdawg11]

Oh, MY GOD NO!

He just said the banking system is sound.

I can''t watch the rest....gotta go get my money out.

I still have 50 dollars left from my STIMULUS package.

[tawpdawg11]

Shut up you whiners, your deposits are insured.

Posted by GOP_forever at 10:31 AM : Jul 15, 2008


The FDIC has 53 billion for insuring deposits.

How much money is in the banks that needs to be insured, Mr wiseguy.

[generey]

GAWD this is funny! I''d bet George has most of his $$$ in a foreign bank.