Bernanke & Paulson Head To The Hill
Thursday, February 14, 2008SUSIE GHARIB: A gloomy economic forecast today from Ben Bernanke. The chairman of the Federal Reserve told the Senate Banking Committee that the U.S. economy continues to quote deteriorate. He also said policy makers are prepared to cut interest rates further to help boost growth. At that same hearing, Treasury Secretary Henry Paulson told lawmakers that the Bush administration is working to reduce the strains of the credit crunch on the economy. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's not a pretty picture. Rising foreclosures are adding to an already glutted housing market and job losses are increasing in construction and manufacturing. Fed Chairman Ben Bernanke told the Senate Banking Committee the Fed will lower its growth forecast next week.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: Growth looks to be weak, but still positive, during the first half of the year and with some expectation of strengthening later in the year. But again, that is a baseline and there are risks to that forecast.
DHUE: The risks include consumers' cutting back on spending because of jobs losses, higher energy prices, lower stock prices, and declining home values. Bernanke is also worried that problems in the financial system will continue to make credit harder and more expensive to get. He urged banks to quickly write off bad debt.
BERNANKE: The best remedy to that is for the banks to reveal their losses, to get them behind them, then to go out and raise more capital, so that they can operate in a safe way and in a normal way.
DHUE: Bernanke says the stimulus package, along with interest rate cuts, should make the economy stronger and more resilient in the second half of the year. But lawmakers are concerned. Senator Jack Reed is especially worried about declining home values.
SEN. JACK REED (D) RHODE ISLAND: There could be as much as a 20 to 30 percent devaluation in the value of homes in the United States, which some people have estimated to be on the order of $4 to $6 trillion in household wealth. That is going to be a huge shock to the quality of life of most Americans.
DHUE: The weakening economy appears to be strengthening political battle lines -- witness this testy exchange about a potential recession between Treasury Secretary Henry Paulson and Democratic Senator Robert Menendez.
SEN. ROBERT MENENDEZ (D) NEW JERSEY: I don't want to talk down the economy, but at the same time, we need to be able to work to build it up if we know we have challenges and part of that challenge is the housing crisis.
HENRY PAULSON, US TREASURY SECRETARY: If you're trying to talk the economy up, I'd hate to see you try to talk it down but to.
MENENDEZ: I'm just not trying to hide my head in sand.
PAULSON: I'm not, either.
DHUE: Meanwhile this afternoon, Senate Democrats unveiled what they call a second stimulus plan. A key and controversial piece would let bankruptcy judges modify home loans. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
