Bernanke distinguishes the facts from the fear

The Senate Banking, Housing and Urban Affairs Committee held a full committee hearing on the Federal Reserve’s semiannual monetary policy report to Congress. Sen. Chris Dodd (D-Conn.) presided over the hearing and said that in considering the state of the U.S. economy, it is important to distinguish between fear and facts. Dodd explained that in the country’s markets today, in particular during the turmoil of recent days, far too many actions are being driven by fear, and are ignoring crucial facts. This neglect of the facts, Dodd said, has caused Americans to experience unprecedented hardship and uncertainties, and now more than ever, they need to know when things will start to turn around and when the country will get back on track.

Chairman of the Federal Reserve, Ben Bernanke, explained many of the significant challenges the U.S. economy and financial system have experienced thus far in 2008. Bernanke said that economic activity has advanced at a sluggish pace during the first half of the year, while inflation has remained elevated. Though the Federal Reserve and the Federal Open Market Committee (FOMC) have eased policies to counter weakness in economic growth and expanded some of the special liquidity programs and implemented additional facilities to support the functioning of financial markets and foster financial stability, the economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and other commodities.

Bernanke explained that investors have recently become particularly concerned about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Because of this, the Treasury announced a legislative proposal to bolster their capital, access to liquidity, and regulatory oversight. Healthy economic growth depends on well-functioning markets, thus, Bernanke said, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve.

Looking at the economy overall, Bernanke said that it has continued to expand, but at a subdued pace. The unemployment rate has risen to 5-1/2 percent, activity continues to weaken in the housing sector, and the labor market has “softened.” Bernanke explained that inflation has remained high and seems likely to move temporarily higher in the near term, while the price of oil currently stands at about five times its level toward the beginning of this decade. This surge in oil prices has been driven mostly by strong growth in underlying demand and tight supply conditions in global oil markets; the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil. Bernanke also said that the decline in the foreign exchange value of the dollar, along with financial speculation, have added to the increase in oil prices.

Bernanke finished by saying that the possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth. On the other hand, upside risks to the inflation outlook have intensified lately, as the rising prices of energy and some other commodities have led to a sharp pickup in inflation and some measures of inflation expectations have moved higher. Bernanke said that given this high degree of uncertainty, monetary policy makers will need to carefully assess incoming information bearing on the outlook for both inflation and growth.

Economic woes remedied by green technology

Representatives from leading renewable technology companies and small businesses appeared before the House Small Business Committee to discuss the role of green technologies in spurring economic growth, particularly for small firms that are developing and using green, renewable practices.

Gregory Wetstone, senior director of government and public affairs for the American Wind Energy Association stated that nearly 35% of the nation’s new electrical capacity in 2007 came from wind energy, and the numbers are growing. Wetstone also said that America provides one of the best opportunities to harness wind energy. In addition, he said that turbine production plants help the economy by relying on nearly 400 sub-suppliers, many of which are small businesses.

Speaking on behalf of the Plumbing-Heating-Cooling Contrators Association, Kevin Tindall stated that if only one in 10 homes installed water-efficient fixtures it could save more than 300 billion gallons of water and save nearly $2 billion annually in energy costs. Upgrading to these technologies also creates a strong demand for employees that are knowledgeable about energy-efficient products and necessary education programs.

However, Rep. Joe Sestak (D-Pa) expressed concern over the cost of green technology. Andrea Lucke, vice president of sales and design for Robert Lucke Homes in Ohio stated that the average buyer stays in their home for only 7 years. This is not long enough to make the purchase of green technologies like solar panels feasible for homeowners. Members of the panel urged the committee to increase and continue federal incentive programs for such technology to combat this issue.

How Asia could put US back in black

America’s shifting economic dominance and relations with Asia were discussed by Christopher Padilla, Undersecretary for International Trade at the US Department of Commerce, who spoke to a packed house at the American Enterprise Institute. He stressed the importance of forming free trade agreements with Asian countries, especially Korea and China.

According to Padilla, 60 percent of economic activity in Asian nations occurs within the continent, and the numbers are growing. He warned that continued stalling on the part of congress could result in huge economic losses for the United States.

The Undersecretary believes free trade agreements with nations like Korea are key to the United States’s continued influence in the region. Padilla stated that a hefty portion of the global GDP comes from Asia - nearly 40 percent - and the United States must solidify trade relations to ensure continued trade opportunities and economic superiority. In addition, he stressed the importance of continued dialogue between the East and West to facilitate both economic and international agendas.

Are stimulus checks coming fast enough?

The House Committee on Ways and Means subcommittees on oversight and social security held a joint hearing focused on investigating the status of economic stimulus check distribution to needy Americans.

Members of Congress questioned Nina Olson, national taxpayer advocate at the Internal Revenue Service (IRS), about the progress her department as made in helping to ensure stimulus checks are distributed more quickly to citizens hurting financially. The panel of Representatives paid particular attention to asking Olson about the IRS’ efforts to help senior citizens fill out information to get stimulus checks, and were assured by Olson that such efforts were being made.

Congressman debated the efficiency the IRS has had in informing the public about filling out and receiving checks, and the amount of time it takes to distribute them. Rep. Kevin Brady (R-TX) argued that the Americans actually need to worry more about the appallingly high price of oil before focusing their attention on stimulus checks.

Unemployment vouchers will help thousands of struggling Americans

The House of Representatives are expected to vote by Friday this week on legislation to provide up to 13 weeks of extended unemployment benefits in every state for workers who have spent their 26 weeks of regular unemployment benefits. In a conference call today, the legislation was discussed and Congressman Sandy Levin (D-Mich.) urged President Bush and his allies to pass the legislation and help thousands of struggling Americans.

The jobless rate jumped to 5.5 percent in May from five percent in April, the largest month increase since 1986, according to a news release. The United States lost 49,000 jobs in May, the fifth consecutive month of negative job growth, which makes the job loss since the beginning of the year nearly 325,000.

Levin spoke of the thousands of hard American workers who have never asked the government for money before, are now running out of money from their unemployment checks. Not only will the passing of the legislation help those in need, but it will also give the economy a boost because people will be giving money back, Levin said. He also urged those concerned that the house and those in support of the legislation will take “whatever steps are necessary to get this bill passed as law.”