Fed Says It Again: U.S. Economy on Rebound

(CBS/ AP)  Federal Reserve Chairman Ben Bernanke declared Friday that the U.S. economy is on the verge of a long-awaited recovery after enduring a brutal recession and the worst financial crisis since the Great Depression.

Economic activity in both the U.S. and around the world appears to be "leveling out," and "the prospects for a return to growth in the near term appear good," Bernanke said in a speech at an annual Fed conference in Jackson Hole, Wyo.

Major stock indicators, which were up moderately before his comments, surged more than 1 percent. Bernanke's remarks energized investors after a choppy week of trading amid mixed signals on the economy.

The upbeat assessment was consistent with the Fed's observations earlier this month. The central bank has taken small steps toward pulling back some emergency programs to revive the economy.

Still, Bernanke stressed Friday that despite much progress in stabilizing financial markets and trying to bust through credit clogs, consumers and businesses are still having trouble getting loans. The situation is not back to normal, he said.

Restoring the free flow of credit is a critical component to a lasting recovery.

"Although we have avoided the worst, difficult challenges still lie ahead," Bernanke told the gathering. "We must work together to build on the gains already made to secure a sustained economic recovery."

Strains in financial markets worldwide persist. Financial institutions face "significant additional losses" on soured investments and many businesses and households are experiencing "considerable difficulty" in getting loans, he said.

Elsewhere at the conference, European Central Bank President Jean-Claude Trichet responded to a research paper on the origins and the nature of the financial crisis by saying he was a "little bit uneasy" about talk of a return to normalcy.

"We know that we have an enormous amount of work to do and we should be as active as possible," Trichet said.

The remarks by Bernanke, Trichet and others come two years after the financial crisis broke out and nearly one year after it had deepened to the point of sending the nation into a near meltdown.

The bulk of Bernanke's speech was a chronicle of the extraordinary events of the past year. Financial markets took a turn for the worst starting last September and into October, nearly shutting down the flow of credit. The crisis felled storied Wall Street firms and forced the government to take over mortgage giants Fannie Mae and Freddie Mac, as well as insurance titan American International Group Inc.

Despite efforts to save it, Lehman Brothers failed. It filed for bankruptcy on Sept. 15, the largest in corporate history, which roiled markets worldwide.

To prop up shaky banks, the government created a $700 billion bailout fund, a program that proved wildly unpopular with an American public suffering fallout from the recession.

The Fed swooped in with unprecedented emergency lending programs to fight the crisis. It eventually slashed a key bank lending rate to a record low near zero. And Congress enacted programs to stimulate the economy, the most recent coming in February with President Barack Obama's $787 billion package of tax cuts and increased government spending.

"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major firms would have failed and the entire global financial system would have been at serious risk," Bernanke said.

In recounting actions by the Fed and the government to battle the crisis, Bernanke didn't acknowledge any missteps by the central bank and other regulators. Critics have argued that the Wall Street bailouts in particular sent a message that companies that take reckless gambles will be rescued by the government. There's also the concern that the rescues put taxpayer's dollars at risk.

The public and lawmakers on Capitol Hill were incensed by the repeated taxpayer bailouts of AIG, totaling more than $180 billion, and outraged after the company paid hefty bonuses to employees who worked in the very division that brought down the firm. The $700 billion taxpayer-funded bailout program used to prop up banks, AIG, General Motors, Chrysler and other companies also drew criticism from the public and politicians.

But unlike in the 1930s, Washington policymakers this time acted aggressively and quickly to contain the crisis, said Bernanke, a scholar of the Great Depression.

"As severe as the economic impact has been, however, the outcome could have been decidedly worse," he said.

Global cooperation in battling the crisis was crucial, with central banks slashing interest rates and the U.S. and other governments delivering fiscal stimulus, he noted.

"The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge," the Fed chief observed.

Sponsored by the Federal Reserve Bank of Kansas City, the conference draws a virtual who's who of the financial world - Bernanke's counterparts in other countries, academics and economists. This year's forum focused on lessons learned from the crisis and how they can be applied to prevent a repeat of the debacles.

To that end, Bernanke again called a rewrite of the U.S. financial rule book - something Congress is currently involved in. He again pressed for stricter oversight of companies - like AIG - whose failure would endanger the entire financial system and the broader economy. Obama would tap the Fed for that job, something many lawmakers in Congress don't like.

Bernanke also said the U.S. needs a process to wind down big, globally interconnected companies, much like the Federal Deposit Insurance Corp. does for failing banks.

"Looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again," he said.

Earlier this month, the majority of economists polled by the Wall Street Journal expressed support for Bernanke, saying the Fed chairman should get another term. Most of the economists said the 20-month-old recession is now over and gave Bernanke much of the credit.

[reality42]

The USSA fed never lies to the people of America. Wake up America when your losing over 500,000 jobs a month that can't be good

[davidaf95]

Personally. I have learned a lot in more than 40 years. I like to SEE things with my own eyes. Hearing 1 person say the recession is over does absolutely nothing for me or the people I know. We'll rejoice when we SEE it.

I'm not a pessimist or an optimist. I'm a realist.

[hologram5]

The federal reserve helped put us here by artificially inflating and deflated the bloody dollar. Those of you that are conservatives that believe this drivel are either too old to understand and have one foot inthe grave and another on a banana peel or are just too blind to see. I didn't vote for Obama, don't get me wrong, but didn't vote for McSame either. I would not elect either one to be class president let alone POTUS. Let's get real, this won't be resolved until our grandchildren are old. As long as we don't manufacture anything ourselves anymore, we WONT come out of this unscathed.

[tmittelstaed]

We DO manufacture, we manufacture structures. Are you blind? Drive around your city someday. In our city out west we have acre after acre of industrial parks stuffed with empty office buildings that were put up in the last decade. Many of them have sat for close to a decade and have NEVER, EVER had tenants in them. Others have always had portions empty since construction. And don't forget the army of home flippers and what they were doing, they were buying up old houses then gutting them and rebuilding them then selling them. All of it construction activity. Take a look at Detroit, many people have documented how companies particularly the auto companies will build a building, run a production line in the building, then abandon the building and build a new building and move the line to the new building. The abandonded building then just sits for decades, empty.

People seem to forget but there's no difference between construction and manufacturing, in fact you can setup a prefab structure that was manufactured elsewhere and just freighted to where it's supposed to be setup.

[sjc_1]

This is the case because there is no money for new business development. Money goes to the highest return and what is good for the country gets no money. It is the way of capitalism.

[timing20002000]

Can you explain to me why when the Republicans majority congress and President Bush, did they not try to tackle the health care reform? If they cared or had all the answers, why did they not take on this tough issue. Since the GOP all of a sudden knows so much, why did they not take this on when they had the power. My guess is they did not care or where to cowardly to do so. But either way, we now have a President that will take on this hard decision

[sjc_1]

The insurance companies are making a lot of money and writing big checks to the GOP, why should they want health care? They were all for the wind fall profits given to the drug companies and brow beating seniors into the "donut hole", but nothing for the people that pay the taxes.

[hungry1968-16]

by Void_Master August 21, 2009 4:24 PM EDT
I just realized, the U. S. does not need any kind of government funded stimulus to help the economy. All we have to do is to parade Bernanke out every few days to tell the world that "the economy is improving" and stocks will just magically shoot up on their own!







Speaking of which, the Dow closed up again, and is now over 9,500.

I'll bet Bush wishes HE COULD SAY that the stock markets were higher when he left office, then when he was sworn in, huh?

And that we didn't have 16% unemployment, unlike when he took office.

And that we weren't in a recession when he took office.

And that we weren't in two wars when he took office.

And......

[timing20002000]

WOW!!! It's amazing to see all the Republicans praying and hoping that the economy gets worse, that homes don't sell, that everything fails. You guys are truly, sad, pathetic, and full of hate. You so called CHRISTIANS.

[parisdakar]

Whew! Glad that's over. Let's get back to living beyond our means.

[reality42]

HAHAHA great post and very true plus USSA will take all the credit that they brought the world out of this ression just like they were the only fighters and winners in world war 2

[ddaryl1]

LMAO at republicans who continually approve that they would rather wallow in misery then ever admit that the democrats did something right.

What really kills me is the millions of Americans that republicans have no conscinece in regards to their well being in this society. They would spend every ounce of energy, they will twist every fact, and they will pollute al lour airwaves with spun news, and fear mongering to make sure the dems don't succeed instead of just stepping up to the plate and actually helping us.

the rpeublican party simply must be dissolved an dlaws need ot be put in place that ever keeps a political party from being capable of the damage the republicna party has caused the world.

I will never in my lifetime vote for a republican. They disgust me, and al of thier supporters are garbage to

[jechaucer]

Everyone must be talking about a different U.S. The U.S. I live in still has 10% unemployment, record job losses, a high rate of home foreclosures, and banks unwilling to lend money. I don't think they meant the U.S. I think they meant fairy land was on a recovery!

[sjc_1]

The Depression saw 25% unemployement and that is where we would be heading with McCain. He said that he knew nothing about the economy, but it was "fundamentally sound" as it was crash down around his ears.

[mary-miami]

The economy will indeed recover and this Depression number two will be history...President Obama will then be the next national hero.
All you republicans will have nothing negative to say at that point, because you will see a flourishing economy...and we Democrats will stand up to say, Yes America...we love the USA. That which benefits one American citizen, benefits the nation.
www.marymiami.wordpress.com