Monday
Oct202008
Bernanke: Second fiscal package would be appropriate
Monday, October 20, 2008 at 3:37PM
Federal Reserve Chairman Ben Bernanke raised the possibility of a second package of fiscal measures during a House Budget Committee hearing.
Bernanke believes that in the context of a threatened economy it would be appropriate, and suggested steps congress could take to make the package most beneficial.
"Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue," said Bernanke.
Bernanke also said that properly timing its release would be a factor so that it would take maximum effect when the economy is expected to be otherwise weak, and that Congress should take care to limit the package's long term effects on the government's structural budget deficit.
"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit consumers, homebuyers, businesses, and other borrowers."
When prompted, Bernanke declined to state how much Congress should allocate for the package, but said that it should be significant.
Bernanke attributes the recent crisis to the erratic housing market, in which the increase in house prices was followed by a steady decline, coupled with a pattern of irresponsible lending practices.
To mitigate the crisis's impact, the Treasury Department and the Federal Reserve, along with foreign governments and their central banks, have expanded currency swap lines with central banks and established temporary programs to aid problems in in the market for commercial paper.
"The Treasury implemented a temporary grantee program for balances in money market mutual funds...the Federal Reserve put in place a temporary lending facility that provides financing for banks to purchase high-quality asset-backed commercial paper for money market funds," said Bernanke.
According to Bernanke, the bailout bill also offered resources to improve the current situation. These include providing capital to financial institutions, purchasing or guaranteeing troubled mortgages, and increasing the limits of how much the Federal Deposit Insurance Corporation and the National Credit Union Administration covers, raising it to a quarter of a million dollars.
Despite the attempts by the Federal Reserve and Treasury Department, it is apparent that the economy will not be mended overnight. Bernanke said that since the low demand for housing continues to be put up against the glut of unsold homes, residential construction is predicted to contract into next year and that the general downturn in international trade will continue to affect the U.S. Still, Bernanke contends that inflation should meet levels consistent with price stability due to the de-acceleration on the prices of imports.
"Because the time that will be needed for financial normalization and the effects of ongoing credit problems on the broader economy are difficult to judge, the uncertainty currently surrounding the economic outlook is unusually large," said Bernanke.
Following the hearing Representative Rosa L. DeLauro (D-Conn.) heatedly asked Bernanke if the U.S. was in a recession.
"I don't think it's a fair question for the following reason. Recession is a technical term that was created by academics for studying a certain pattern," said Bernanke.
Bernanke then went on to clarify his answer by responding,
"We are in a serious slowdown in the economy which has very significant consequences for the public and whether it is called a recession or not is of no consequence."
Bernanke believes that in the context of a threatened economy it would be appropriate, and suggested steps congress could take to make the package most beneficial.
"Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue," said Bernanke.
Bernanke also said that properly timing its release would be a factor so that it would take maximum effect when the economy is expected to be otherwise weak, and that Congress should take care to limit the package's long term effects on the government's structural budget deficit.
"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit consumers, homebuyers, businesses, and other borrowers."
When prompted, Bernanke declined to state how much Congress should allocate for the package, but said that it should be significant.
Bernanke attributes the recent crisis to the erratic housing market, in which the increase in house prices was followed by a steady decline, coupled with a pattern of irresponsible lending practices.
To mitigate the crisis's impact, the Treasury Department and the Federal Reserve, along with foreign governments and their central banks, have expanded currency swap lines with central banks and established temporary programs to aid problems in in the market for commercial paper.
"The Treasury implemented a temporary grantee program for balances in money market mutual funds...the Federal Reserve put in place a temporary lending facility that provides financing for banks to purchase high-quality asset-backed commercial paper for money market funds," said Bernanke.
According to Bernanke, the bailout bill also offered resources to improve the current situation. These include providing capital to financial institutions, purchasing or guaranteeing troubled mortgages, and increasing the limits of how much the Federal Deposit Insurance Corporation and the National Credit Union Administration covers, raising it to a quarter of a million dollars.
Despite the attempts by the Federal Reserve and Treasury Department, it is apparent that the economy will not be mended overnight. Bernanke said that since the low demand for housing continues to be put up against the glut of unsold homes, residential construction is predicted to contract into next year and that the general downturn in international trade will continue to affect the U.S. Still, Bernanke contends that inflation should meet levels consistent with price stability due to the de-acceleration on the prices of imports.
"Because the time that will be needed for financial normalization and the effects of ongoing credit problems on the broader economy are difficult to judge, the uncertainty currently surrounding the economic outlook is unusually large," said Bernanke.
Following the hearing Representative Rosa L. DeLauro (D-Conn.) heatedly asked Bernanke if the U.S. was in a recession.
"I don't think it's a fair question for the following reason. Recession is a technical term that was created by academics for studying a certain pattern," said Bernanke.
Bernanke then went on to clarify his answer by responding,
"We are in a serious slowdown in the economy which has very significant consequences for the public and whether it is called a recession or not is of no consequence."
Reader Comments (1)
A stimulus package would be appropriate? Give me a break. You can give the banks all the money you want to, but if they have no one to loan it to it does no good. They just hoard it. If they had sent out the $2 trillion they've given to the banks to the population instead, this thing would be over by now.
The population has been plundered of it wealth. When you ship million of jobs offshore, allow millions of illegal aliens into the country who take jobs from the poor, issue millions of H-1B visas to millions of cheap foreign workers who take jobs from the middle class, meddle with energy until you are sending 100s of billions of dollars per year out to foreign oil producers, strike trade agreements where we buy their stuff and they don't buy our stuff until we run out of money, allow your military to be used to transfer trillions of dollars worth of wealth, transfer a trillion dollars worth of wealth to banks who have backed themselves into a corner with derivatives, and borrow, spend, give away, and waste $11 trillion, you tend to have an economic problem.
http://ewebsmith.com/Finance/therealproblem.html