Bernanke Calls For Long-Term Plan To Restore Economic Sustainability

By Alexa Gitler
Talk Radio News Service

Chairman of the Federal Reserve System Dr. Ben Bernanke testified Wednesday before the House Budget Committee to provide an update on the nation's current economic outlook, and to share recommendations and plans that the Fed has for the future.

“The economy, supported by stimulative monetary policy and the concerted efforts of policymakers to stabilize the financial system, appears to be on track to continue to expand through this year and next” said Bernanke. “The latest economic projections, which were made near the end of April, anticipate that the real gross domestic product (GDP) will grow in the neighborhood of 3-1/2 percent over the course of 2010 as a whole and at a somewhat faster pace next year.”

Although Bernanke was hesitant to offer any specific advise to Congress on legislation, he urged that a plan for medium (3-5 years) and long-term sustainability would need to be put in place to retain the confidence of the American public and foreign markets.

“It is not realistic or advisable to try to balance the budget this year because that would be too wrenching a change, and the economy is still in weak condition,” he said.

Instead, Bernanke suggested that members of Congress use the rest of the year to start working together to develop a longer-term budget plan will bring the economy back to sustainability and persuade foreign markets to continue to have confidence in the U.S.'s economy. He added that his agency has already begun to plan accordingly.

“We hope to have a public report near the end of this year, early next year, but I want to assure you that the actions that will be taken will not wait for the report, but we will be immediately working with the banks,” he said.

Bernanke: Job Market Remains Quite Weak

By Benny Martinez - University of New Mexico/Talk Radio News Service

Chairman of the Federal Reserve Ben Bernanke told the House Financial Services Committee Wednesday that he anticipates a moderate pace to economic recovery, but still has doubts regarding the weak state of the job market.

“Some recent indicators suggest that the deterioration in the labor market is abating,” Bernanke said. “Job losses have slowed and the number of full-time jobs rose modesetly...and claims for unemployment insurance have continued to trend lower.”

Record-low interest rates remain a necessity to boost the economy on a national level, he said. But Bernanke explained that his biggest concern about the economy is the job market. He estimated that the unemployment rate will plateau between six and seven percent by 2012, about one percent higher than an ideal five percent, which is necessary to reacquire a sustainable economy.

“[The jobs market] remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” Bernanke said.

To add to his short-term unemployment concerns, Bernanke said the nation's long-term unemployment rate is an issue.

“Of particular concern...is the increasing incidence of long-term unemployment,” Bernanke said. “More than 40 percent of the unemployed have been out of work for six months or more, nearly double the share of a year ago.”

Nervous Paulson Gets Grilled On Controversial Bank of America-Merrill Lynch Merger

A visibly nervous Henry Paulson, former US Secretary of the Treasury, testified before the Oversight and Government Reform Committee to defend his decision to harshly warn Bank of America CEO Ken Lewis that backing out of the merger with Merrill Lynch, was the best thing to save the American economy.

Though the unemployment rate is currently at 9.5% and is expected to rise, Paulson continued to affirm that if Ken Lewis were to invoke a Material Adverse Change Clause (MAC), which would stop the merger, it would have been detrimental to the economy.

In the first two hearings held to discuss the controversial merger, it was concluded that Ken Lewis must have known about the major fourth quarter losses that Merrill Lynch suffered after the shareholders voted to go ahead with the merger, which would explain his attempt to invoke a MAC clause. Rep. Dennis Kucinich (D-Ohio) asked how Paulson could shoot down the MAC clause (a legal action) and ignore the possible illegal action of Lewis’ withholding vital information from Bank of America shareholders.

“Nothing in Mr. Paulson’s testimony today justifies the Government’s decision to ignore evidence that Bank of America withheld information from its shareholders about mounting losses at Merrill Lynch before the crucial shareholder vote on December 5-- a potentially illegal action,” said Kucinich in his opening statements.

In response, all Paulson said was that he simply did not see any illegal actions.

Rep. Jim Jordan (R-Ohio) said that there is a “clear pattern of deception and intimidation” in terms of the relationships between Lewis, Paulson, the merger and U.S. Federal Reserve Chairman, Ben Bernanke.

“People need to see this situation because it sheds light on where we are headed...it is important we see what happens when you give this kind of involvement to the federal government,” said Jordan.

It was revealed during the hearing that Paulson did in fact share information about the merger with U.S. Securities and Exchange Commission Chairman, Christopher Cox and FDIC Chairman Shelia Bair. In his closing statements, Chairman Edolphus Towns (D-N.Y.) said that he will invite them to testify on their involvement with this merger after the August recess.

House Committee grills Paulson, Bernanke on bailout decisions

The House Committee on Financial Services held a hearing on "Oversight of Implementation of the Emergency Economic Stabilization Act of 2008 and of Government Lending and Insurance Facilities; Impact on Economy and Credit Availability" on Tuesday in which they questioned Secretary of Treasury Henry Paulson, Federal Reserve Board Chairman Ben Bernanke and Federal Deposit Insurance Corporation Chairman Sheila Bair.

“At this point, public confidence in what we have done so far is lower than anyone would have wanted it to be,” said Chairman Barney Frank (D-MA), “it is essential that we do something to use some of the TARP’s (Troubled Asset Relief Program) funds” to stop the tide of foreclosures in the country. Chairman Frank and other Democrats were critical of how Secretary Paulson had decided to use some of the $700 billion bailout money to buy preferred stocks in banks rather than buy “toxic assets” for which Congress initially called for.

Paulson defended his position by arguing that the best way to save the credit market was by injecting cash directly into banks. “It is very, very important to stay with the purpose of the TARP,” said Paulson. “This is all about protecting the financial system, avoiding collapse, and recovery.”