Bernanke: Fiscal Measures Needed

123jump.com Staff
13 Jan, 2009
New York City

Fed Chairman Bernanke highlighted that recent easing in the monetary policy may not be enough and fiscal measures may be needed to revive the economy. For the first time, chairman acknowledged that the weakness in financial monitoring by regulators and at rating agencies contributed to the crisis.

[R]11:00AM New York – Fed Chairman Bernanke suggested more than monertary policy measures will be required to revive the U.S. economy.[/R]

The Fed Chairman Bernanke in a prepared speech stated that the monetary policy alone will not help to revive economy.

The chairman acknowledged that the recent monetary easing has lowered interest but not increased the willingness by the lenders to lend. He noted, “However, that offset has been incomplete, as widening credit spreads, more restrictive lending standards, and credit market dysfunction have worked against the monetary easing and led to tighter financial conditions overall.”

Bernanke also highlighted the difference in central bank response during the Japan financial crisis and the current U.S. crisis.

The Bank of Japan focused on providing easy credit to banks but focused on making sure that the banks have ample reserve so the confidence in financial system was restored. The current response from the Fed is focused on the mix of assets held by the central bank so that the lending reaches to the consumer and businesses.

While Bernanke highlighted the breakdown in underwriting standards, greed at rating agency and lack of regulatory oversight and failure of the opaque derivatives in the mortgage markets, but failed to note that the rising current account deficit is the root cause of the current crisis.

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