LONDON, Jan. 13, 2009
Bernanke: Obama Stimulus A Good First Step
Plan Would Give Economy "Significant Boost," But Broader Reponse Is Required, Fed Chair Says
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Ben Bernanke, Chariman of the Federal Reserve, leaves 10 Downing Street in London after a meeting with British Prime Minister Gordon Brown, Jan. 13, 2009. Bernanke said a stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking economy. (AP Photo/Alastair Grant)
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Although Bernanke has previously endorsed the notion for a fresh round of government stimulus to lift the country out of a recession, it marked the first time the Fed chief has referenced the roughly $800 billion recovery plan now being worked on by Obama, who takes office next week. Obama envisions a blend of tax cuts and increased government spending, including on big public works projects, to make up the stimulus plan.
Bernanke, who didn't weigh in on the details of the evolving package, made clear that such a recovery plan was needed as part of a broader, multi-pronged government response to combat the worst financial crisis to hit the U.S. and the global economy since the 1930s.
"The incoming administration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity," Bernanke said in a speech to the London School of Economics.
"In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system," he warned. "History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively."
To help on that front, the Fed is loaning out billions to financial companies and buying mounds of companies' debt to help bust through the debilitating credit clog. And the Treasury Department is overseeing a $700 financial bailout program that has pledged to inject $250 billion into banks in return for partial government ownership. Some money from the bailout pot also is being used to guarantee against possible losses from risky assets held by Citigroup Inc.
Bernanke said "more capital injections and guarantees may become necessary" to stabilize financial markets and spur more lending. If Obama's incoming Treasury secretary Timothy Geithner decides to remove toxic assets from financial institutions' balance sheets - the original but abandoned strategy under the $700 billion bailout - Bernanke suggested some options to do that.
Public purchases of the troubled assets are one way to go, he said. Another option is to provide asset guarantees under which the government would agree to absorb - presumably in exchange for warrants or some other form of compensation - part of the prospective losses on specified portfolios of rotten assets held by banks. Yet another approach would be to set up and capitalize so-called "bad banks," which would buy assets from the financial institutions in exchange for cash and equity in the bad bank.
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Some Americans and some on Capitol Hill have been upset about Treasury's management of the $700 billion program, which has provided aid to financial companies and others on Wall Street - some of whom are blamed for getting the country into economic the mess in the first place - while other struggling industries get little or no assistance.
In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking.
Federal Reserve Chairman Ben BernankeBernanke said he understands this concern, but added: "This disparate treatment, unappealing as it is, appears unavoidable."
The United States' economic system is critically dependent on the free-flow of credit, Bernanke said. It is like the economy's oxygen. As it has been cut off, the economy has sunk deeper into recession, taking Americans' jobs with it.
Washington policymakers, Bernanke said, "must therefore do what they can to communicate to their constituencies why financial stabilization is essential for economic recovery and is therefore in the broader public interest."
Obama's political skills will be put to a high-stakes test with Congress as he seeks assess to the second half of the $700 billion bailout pot. Congress has a 15-day deadline to reject the request, which President George W. Bush made on Obama's behalf on Monday.
Even as the U.S. battles the current crisis, it must move to prevent future ones. To be effective, international cooperation is needed, Bernanke said.
"A clear lesson of the recent period is that the world is too interconnected for nations to go it alone in their economic, financial and regulatory policies," Bernanke said. "International cooperation is thus essential if we are to address the crisis successfully and provide the basis for a healthy, sustained recovery."
© MMIX The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Add a Comment See all 22 Comments
- I agree with Chairman Bernanke that "multi-pronged government response to combat the worst financial crisis to hit the U.S. and the global economy since the 1930s" is needed to combat the worst economic slump in American history. It is also a slump that we have never seen before. Bush fiscal policy is not working for the last 8 years. Where are the jobs that the economic growth is supposed to generate after the government has cut tax for businesses and individuals. There is none; we have lost more jobs in the manufacturing sector than at any other time in history.
On the subject of tax, the only thing I worry about is that the tax structure left by the Bush Administration is still in place when the stimulus package will be be enacted in the future. I hate to see that the benefits of the tax cut to go entirely to rich guys like Madoff. - Reply to this comment
- Obama will be far better at this than sit back and wonder Bush.
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- Please!!! If you cynical people are going to rant and rave with useless statistics, please be smart enough to list your references.... Thank you.
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- And Bernanke''s opinion counts - why?
His track record hasn''t been so great itself, so why does what he says matter any more?
The financial guys don''t belong to any party, they belong to a club. A very wealthy club that takes care of their own at the expense of the citizens. Oh, and you can throw Obama''s new treasury guy in that group as well. - Reply to this comment
- First step???
Whats he been doing all along? I thought the "First Step" was dolling out 350 Billion with no strings attached????
And what did those banks do with the money? Well of course, Buy their compeditors... Just what we all need, More Monopoly Banking....
Posted by jtdev1 at 12:08 PM : Jan 13, 2009
~~~~ Hello! Have you been under a rock? President Bush was in charge of the first $350 billion, not President-elect Obama. He doesnt even swear into office until next Tuesday.~~~~ - Reply to this comment
- Shutting down the Federal Reserve Bank of Israeli Criminals and Scumbags should be the first order of business for Obama. Bernie can hitch a ride with Maddoff to the Caymans to pick up the $Billions$ they''ve stolen on their way home to Tel Aviv....
Oy, you should be so lucky.... - Reply to this comment
- -----"Washington policymakers, Bernanke said, "must therefore do what they can to communicate to their constituencies why financial stabilization is essential for economic recovery and is therefore in the broader public interest."-----
Maybe another reason we can''t seem to get out of the vicious circle of throwing good money after bad is like that Bernanke still speaks with such confidence and authority, it then becomes virtually impossible for the rest of us to make a case that something just doesn''t feel right to the rest of us.
I mean like try as we might to speak their lingo and stuff, they still have the stature to claim the mantle of credibility and they still have the power to act on their claims.
It''d be one thing if once they''ve established a record that''s shown as being ineffectual, stuff actually changed up in Washington. Yet nothing ever changes . . . why is that?
It''s like deja vu with Bernanke claiming we need to be educated, and Dems promising oversight . . . nothing every changes . . . what do we do? :o - Reply to this comment
- Its time to sap this REGIME. B.O. is doing nothing Bush is already doing - making the rich get richer with a generous piece for the thieves.
The U.S. Constitution already gives authority of the people to put-down this rogue, elite crimminals. I its time to take the White HOuse back and give it to the people. - Reply to this comment
- Uncle Ben on his way OUT is giving the U.S. a BEND-OVER sent off.
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- Bush tripled the debt
And tripled the size of Gov''t. in just 8 years.
That''s called Conservative fiscal responsibility.
In fact, he accrued more debt in 8 years than the combined total of all the administration''s,
throughout the entire Country''s history,
If added together.
Clinton left Bush a surplus - which he squandered--
Now he leaves Obama, the worst financial condition
Since the Great Depression!!!
Roosevelt, is credited by Economists with pulling the Country out of the Depression,
Through massive deficit spending, through WPA projects-
Whose legacy we still benefit from today-
Roads Bridges etc.
Its amazing how Partisan fools criticize Obama
before he even steps up to the plate!!!
Yet rationalize Bush''s lack of accountability away-
It just goes to prove
RepugnantCons
Are just plain Red State Dumb!!!
After all, they did vote the same Moron in two times!!! - Reply to this comment
- Rofl, that hilarious LwyrsGnsMuny.
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- This from the guy who unknowingly flicked the first domino in our economic crisis.
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- First step?
No, this is not his first step. He made his first step this week when he bowed to moral terrorists.
They didn%u2019t like the minister he was having say the prayer at his inaugration because that minister had openly spoken against homosexuals. So Obama is now letting the top gay guy that split the Episcopal church a few years back, speak at a preinaugration event on Sunday. Talk about bowing to terrorists!!! He is politicking for 2012 before he even gets inaugurated!! Islamic terrorists are probably ready to welcome him with open arms!!
Like Farrakan said %u201Cthe messiah has come%u201D. I think he was speaking to the Gaza people. - Reply to this comment
- So the almighty obama has already stabbed his business supporters in the back with his campaign promises. As he naively made his ridiculous and infeasible promises to get elected, a few knew there was no way he could implement them, yet crowds of uninformed people worshiped him at the polls. Now the promised gift boxes are empty. He has already pulled the $3000 per job created promise out of his stimulous package after he promised it to businesses during his "historic" campaign. Get ready for more of your "rewards", obama supporters.
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- "No Stimulus for you, Bennie"....(The Stimulus Nazi)
- Reply to this comment
- First step???
Whats he been doing all along? I thought the "First Step" was dolling out 350 Billion with no strings attached????
And what did those banks do with the money? Well of course, Buy their compeditors... Just what we all need, More Monopoly Banking.... - Reply to this comment
- There is ONLY ONE WAY to bring back the economy of the US: BRING JOBS BACK TO THE US!!!
The place I work for is starting to do just that, bringing back parts that the Chinese used to make that we ORIGINALLY made here, but farmed out to the Chinese because it was supposed to be cheaper!!
They found out that it is now actually CHEAPER to have the parts made here, under their own roof, than 20,000 miles away!
Naturally, the Chinese DON''T like it, but that''s just TOO BAD!!!
SIG HEIL, BRINGING MANUFACTURING BACK HERE IS UN-AMERICAN!!!, BUSH!!!! - Reply to this comment
- This guy is just another example of conservatives they have no answers only complaints.
Get rid of him now he wants to support a good idea.
Ben what happened all the other months before and when are you going to regulate the banks and credit cards.
I for one have had enough of this style of government. The only thing they try to get done is to stay in power. They have no answer and only reward the rich. - Reply to this comment
- Bernanke is part of the problem. He is now asking for more money to bail out banks, banks who refuse to lend out the money they have been given. Then on top of it he keeps emphasising the regulation is not the answer. If there were more oversite and regulation you would not have had the ponzi schemes, you would have not had sub prime lending and therefore whould not had a housing prioce bubble. We would not have been paying $4.00 per gallon for gas, and artifically high prices for food, especially corn.
Giving the banks more of our money is not the answer, reulation and severe penalties are the answer.
Of course then the rich would not be able to reap double digit growth each and every year, so it will never happen. - Reply to this comment
- Getting rid of bernanke would be a good start. Then the Fed.
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