Issuing a broad defense of the Fed’s actions over the past year, Bernanke asserted that the U.S. economy is on the verge of a recovery from “the most severe financial crisis since the Great Depression.”
“After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for growth in the near term appear good,” Bernanke said, in his speech at an annual economic symposium in Jackson Hole, Wyo., sponsored by the Federal Reserve Bank of Kansas City.
Bernanke’s remarks are consistent with — and perhaps even more upbeat than — statements he has made in recent months about whether the economy has turned a corner. He has embarked on something of a public-relations campaign intended to shore up dismal public opinion of the central bank, including a public forum moderated by Jim Lehrer last month in Kansas City.
Much of Bernanke’s speech Friday was devoted to a chronicle of the dramatic events of the past year, including the fall of Lehman Brothers and the bailout of insurance giant AIG. Bernanke also asserted that swift actions by Congress, the Obama administration, and the Fed, such as the $787 stimulus package, the $700 billion bailout fund, and emergency lending programs, helped prevent even greater turmoil in the financial markets.
“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.
Bernanke defended, as he often has, the decision to allow Lehman to fail, saying that government attempts to find a buyer were unsuccessful and that the firm lacked the necessary collateral for a Fed loan. Because AIG “was counterparty to many of the world’s largest financial firms, a significant borrower in the commercial paper market and other public debt markets, and a provider of insurance products to tens of millions of customers,” he said, “its abrupt collapse likely would have intensified the crisis substantially further.”
Bernanke’s assessment comes during a week when there have been positive economic signs from abroad. Both Germany and Japan reported positive economic growth this week, an unexpected rebound from their own recessions.
In another positive sign the U.S. economy may be turning a corner, a widely watched economic measure issued by the Conference Board tracking payrolls, incomes, sales and production suggested Friday that the economy steadied in July and that the outlook for the near term appears poised for growth.
Bernanke cautioned in his remarks Friday that perils remain, including making sure that banks have sufficient liquidity and the need to police systemic risk, echoing proposals the Obama administration have put forward in recent months as part of its regulatory reform plan.
Bernanke’s term as Fed chairman expires Jan. 31, and discussion of whether President Obama will reappoint him to a second term is the topic of much private discussion among the who’s-who of economists gathered at the Jackson Hole symposium. Dark-horse candidates for the position, should Mr. Obama decide not to retain Bernanke, reportedly include San Francisco Fed President Janet Yellen, former Fed vice-chair Roger W. Ferguson Jr. and Christina Romer, chairman of the Council of Economic Advisers.