Bernanke sees slow US recovery
Posted
The chairman of the US Federal Reserve, Ben Bernanke, is warning that America's economic health will not bounce back quickly even if confidence in the financial system returns.
In a speech in New York, Mr Bernanke has acknowledged there has been a slowdown in consumer spending, business investment and the labour market.
But he has not used the term recession.
Mr Bernanke also says economic recovery will depend greatly on the extent to which financial and credit markets return to their normal functioning.
"Stabilisation of the financial markets is a critical first step, but even if they stabilise as we hope they will, broader economic recovery will not happen right away," he said.
"The crisis will end when comprehensive responses by political and financial leaders restore that trust, bringing investors back into the market and allowing the normal business of extending credit to households and businesses to resume."
But he predicts that the US economy will eventually emerge with renewed vigour.
Bush
Meanwhile, US President George W Bush, has confronted worries about the widening US Government sway over banking, saying his "extraordinary" actions would save the free market and revive the economy.
"It's very important for the American people to know that the program is designed to preserve free enterprise, not replace free enterprise," he said in a brief public appearance as he opened talks with his cabinet.
He spoke one day after announcing that the government would pump up to $US250 billion into banks and offer new guarantees to help restore credit flows - the latest effort in the battle against a loss of global confidence.
"We have taken extraordinary measures, because these are extraordinary circumstances," Mr Bush said.
"I am confident in the long run, this economy will come back."
With US Secretary of State Condoleezza Rice and US Treasury Secretary Henry Paulson on either side of him, Mr Bush also promised that the Government buy-up of stakes in the banks was "a temporary decision" because the Government would eventually sell back its holdings to the banks.
- AFP/ABC
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Comments (19)
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Wake up Australia:
16 Oct 2008 8:48:22am
There will be no chance of the US beginning to repair its economy until the election is decided and they bite the bullet and formally acknowledge/announce that the country is in Recession. While they continue to live in denial the equity market will continue its wild gyrations.
Yes I know about the technicality of two or more quarters of negative growth - but that is just a rule of thumb and every economic indicator (both historic and leading) strongly indicates an existing Recession.Agree (0) Alert moderator
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James A:
16 Oct 2008 9:54:04am
They will be in trouble until they pay off their government debt.
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Somewaht Perplexed:
16 Oct 2008 11:17:42am
They will also be in trouble until they except that the free market needs some well targetted regulation to work.
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Doh:
16 Oct 2008 9:10:01am
$250 billion here, $250 billion there. Pretty soon this will add up to serious money.
The latest figures in retail spending in the US were down by what 3% over a year ago? Nothing more than a blip.
The credit bubble must either deflate or burst.
The US printing more and more cash can only lead to one thing. Hyperinflation. Not the kind our government warned about with reference to genies and bottles, but Zimbabwe style.
Forget a recession. When this bites it will be a depression. Buddy can you spare a dime?Agree (0) Alert moderator
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renn:
16 Oct 2008 9:30:30am
From what I can see , business confidance is coming back in the last month. People are starting to move around again and spend some money. It was remarkably quieter from April on, but it is starting to improve. The warmer weather is here and people are busy again.
Hope it keeps up.Agree (0) Alert moderator
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Smaug:
16 Oct 2008 9:32:06am
After the Great Depression it was decided the term "Depression" had too many conotations so it was decided to come up with a new term with a reasonably tight definition and that word was "Recession". So a Depression isn't something worse than a Recession.
Of course if I had to put a label on the current state of the US economy I'd be more inclined to call it a case of being up Sh*t Creet, in leaky canoe without a paddle. Of course we're in the same creek but at least we've got a small paddle and are not leaking quite so badly.
Perhaps a term such as a Bushression could be used or perhaps Creditcession, anyone got any other suggestions?Agree (0) Alert moderator
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Oscar:
16 Oct 2008 9:51:28am
"The US printing more and more cash can only lead to one thing. Hyperinflation. Not the kind our government warned about with reference to genies and bottles, but Zimbabwe style."
Dead Set! The other salient factor in this is their abominable deficit which has hit one trillion dollars. It is difficult to see how the USA can recover from such a deficit when they have a contracting economy. If the IMF were calling the shots on the US economy right now the way have done in the third world then they would be dictating an "austerity program" to reduce the deficit.Agree (0) Alert moderator
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Illuminati:
16 Oct 2008 9:38:25am
The US will recover much more quickly than what people are predicting. In taking stakes of the major American Banks the US Governement has also taken equity in all the investments that the banks owned. This could be companies like car producers, supermarkets, department stores and also includes investment managers owned by the US banks so when consumers now purchase products from any of these companies, they are indirectly supporting the US government. This is not limited to the US markets but is global as the US banks own equity through investment managers in just about every company one can imagine. So when consumers go down to the shops to buy a litre of milk, because the US governement now partially owns the store that sells it, the consumer is helping support the US government and all its policies.
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Somewhat Perplexed:
16 Oct 2008 11:22:54am
If it is that simple then why does government not own business in general?
Have you noticed how they love to stand up and say how big the surplus is. This would only improve their balance sheet yet they do not do it.
Could I suggest government is a rotten business owner. It is, however, a great regulator when they ignore the lobbyists and listen to the people.Agree (0) Alert moderator
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Dan:
16 Oct 2008 11:38:19am
It is assumed/hoped that with all the government intervention the worst of the financial crisis is or will soon be over, but that's just an assumption. There's a 'good' chance it could get much worse yet, nothwithstanding the measures taken to date. As of last week and certainly as of today, world stock markets have become oversold. Statistically possibly more oversold than they have been in the last 40-50 years. A rebound is to be expected (markets tend to bottom out Oct/Nov then rally in the northern hemisphere spring of the following year). For example, when the market crashed in 1929, between Nov 29 and the northern hemisphere summer of 30 the market rallied about 50% before plunging 85% a little before the Great Depression. The problem is that governments have allowed bubbles to form in equities and housing over the last 10 years or so which has good for them in a short term political sense but it's also encouraged many people/businesses, banks etc/governments to over gear themselves so much that even if governments buy up all the bad debt it's the governments themselves that might start to fail. This can already be seen in the fact that the US government bond market is so weak this time when in the past it's often rallied when the stock market has gone down. This is a sign that there's so much overgeared debt in the system that even governments are having trouble absorbing it, and we're only in the early phases of this event. It's a given that the global economy is going to slow down significantly and once China has less demand for its manufactured goods from the US, China will have less need for our raw materials, which is going to slam our economy regardless of how 'healthy' our lending practices have been compared to other countries. It's going to get very very tough and it's likely to take a long time for us to recover from this one, we might be about to see another GD. The awful thing is that this was avoidable, if government regulators put in place responsible lending practices, if wall street lender we're so gung ho on financing junk credit and if we'd elected leaders that were up to the task this may have been avoided...
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Cato:
16 Oct 2008 11:56:45am
You have to buy a lot of milk because all the rest that you mentioned will not produce much ROI in the short-medium term. The USA is on a dangerous slop so do not expect miracles. Greenspan & Bernakie must be held responsible for this dire situation. Fasten you seat-belt as the bear run has just started!
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Illuminattia:
16 Oct 2008 12:22:55pm
Yes, a lot of milk. Also cars, finance loans, super fund management fee's, white good appliances, credit cards, coal, oil, groceries, iron ore in fact just about everything.
They dont need to make a lot off of any one item, just a little on nearly everything and the more money they collect, the less they have to spend of their own tax payers money.Agree (0) Alert moderator
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John O:
16 Oct 2008 9:48:01am
The free market would not need help if it was indeed a true free market. The US is either already ina recession or that close it doesn't matter. We aren't far behind.
While a lot of posters on here will be salivating at the prospect of the US collapsing its time they left their tired old idealogy behind. The same can be said of those from the right. Both idealogies have been proven wrong now is the time for a middle path and a balanced approach to the economy.
Its time to stop measuring our society by GDP etc and measure by other means - gross national happiness (several nations use this to gauge their success) or something similar. Where would be then? Pretty poor I dare say with issues that neither side of politices really try to fix.
It's time we had a new political party that is willing to implement new policies and not just copy from the other side like our current politicians do or slide into tired old left or right wing garbage or have such a narrow focus they are almost redundant (hello Greens).
We are on the cusp of something very scary and Kevin Rudd has no answers - neither does Malcolm Turnbull (regardless of the fact he is acting like a real opposition leader and not just hoping the Government shoots itself in the foot).
Start saving guys and I don't mean super - I'm not counting on having much left soon.Agree (0) Alert moderator
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Doh:
16 Oct 2008 11:06:14am
The problem with saving is when the inflation rate exceeds the interest rate, and then the value of your savings goes down in a hurry.
To illustrate - Inflation rate = 1000% Interest rate = 10% You go backward at 99% PA.
The big problem with what governments are doing around the world is that nobody wants to return household debt levels to sustainable levels.
You guessed it, the days of the $400k mortgage on a $400k house are numbered. The model just doesn't work during a period of asset devaluation. Lookout below!
The governments just keep looking at the wrong problem, just as much as they turned a blind eye during the asset bubble.Agree (0) Alert moderator
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P Q:
16 Oct 2008 10:07:18am
Americans are in denial. They have been telling the rest of the world that their banks were solid until they started falling over like dominos. American capital has largely been wiped out by their bankers who got paid big bucks for just merging or acquiring other companies, or lending money to risky borrowers, without any assurance of returns. Do you think that they will admit that the only way to solve the problem is through prolonged savings to rebuild their capital ?
We are not much better.Agree (0) Alert moderator
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Bungeye:
16 Oct 2008 10:59:34am
From the outside looking in USA is one giant Theme Park. And they can't fool the world with anymore of there Hollywood crap.
Bush and Family need to have all their assets frozen as punishment for heading this economic storm. And Opec should fund part of the bailout for ripping us off at the bowser for the past 7 years.Agree (0) Alert moderator
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Doh:
16 Oct 2008 11:28:27am
Let the punishment fit the crime, and let the laws of natural consequence do their thing.
Move to renewable energy and OPEC ceases to exist. Seems fair.
Replay President Bush's more notable speeches to him. Does anybody remember the one where he declared that human beings and fish could live together in harmony?Agree (0) Alert moderator
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Moi:
16 Oct 2008 11:59:10am
This is the very same person who a few months ago said things were going along just fine...http://www.itulip.com/
Onya Bernanke...Agree (0) Alert moderator
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Gary W:
16 Oct 2008 12:43:54pm
Anyone remember when oil was almost $150 a barrel? All this financial circus is just one more symptom that the Age of Cheap Energy is over. Money that might have been spent on renewable energy and energy security has been blown on banksters' self-induced bad debts. Gaol, not bail!
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