Fed Chairman Discusses Passing Another Stimulus Package
Fed Chairman Ben Bernanke suggested today, while testifying before the House Budget Committee, that Congress should consider passing some sort of economic stimulus package that would improve access to credit by homebuyers and other borrowers.
Here's what Bernanke had to say:
As I discussed earlier, the extraordinary tightening in credit conditions has played a central role in the slowdown thus far and could be an important factor delaying the recovery. If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses, and other borrowers. Such actions might be particularly effective at promoting economic growth and job creation.
The AP says that House Speaker Nancy Pelosi announced that Congress was considering an economic recovery bill as large as $150 billion, but that economists have said that the package would have to be twice that size.
The AP says:
Bernanke’s nod for another round of stimulus comes after a flurry of drastic actions by the Federal Reserve and the Bush administration has yet to unlock lending and calm financial markets.
Banks fear lending money to each other and to their customers, creating the worst financial crisis since the Great Depression. Businesses are reluctant to hire and boost capital investments. Consumers have hunkered down. All the economy’s problems are feeding off each other, creating a vicious cycle that Washington policymakers are finding difficult to break.
Bernanke: Fresh stimulus worth considering [MSNBC]
Economic outlook and financial markets [FED]
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Comments:
Oh boy! Let's dig this hole even deeper!
Fresh stimulus...what I normally do after drinking a pot of coffee at 8am.
This has absolutely nothing to do with the election of both President, and Congressional seats. Nothing.
I don't think they realise that things ARE going to get bad, and we ARE going to have to just ride it out.
There's nothing the government can do to save us now.
I've been running an ecommerce site for about 12 years now and we saw a really profitable month in September followed by an alarming dropoff in sales starting a few weeks ago. A lot of people on webmasterworld are reporting the same kind of trend. This to me indicates some sort of psychological effect going on with consumer spending, though strangely enough I've read very little about people explicitly saying they're cutting back on spending. Perhaps people are under financial strain, and they can only make the minimum monthly payment on a maxed-out card, thus they're staying afloat but unable to spend.
It will after we vote out every idiot that voted for this god forsaken "bailout".
So much for "Republican" principles.
So, what will y'all be doing in the post-collapse apocalypse? I'm thinking of investing in a ramshackle compound surrounded by barbed wire and burning trash barrels, and a motorcycle.
The ship is sinking...
*runs and checks stock market*
Yep Ben Bernanke lips start flapping and the DOW goes down. Anyone who hot glue guns this chumps lips closed with be forever my friend.
Why do they want to rush to give more people credit? Isn't the lesson learned by this mess "buy only what you can afford"?
Banks shouldn't be lending to those who cannot afford to pay back the debt. Where are they going to find this new pool of responsible borrowers?
@TecmoTech: My thoughts exactly, making it easier to get credit is the key thing that led to this mess in the first place.
@TecmoTech: That is only the lesson if your friends are the ones in debt, not the ones running the banks who make a profit off your debt...
Guess which category ol' Ben falls into.
you're not going to fix the problem without addressing the 2 main causes of it - job loss & foreclosure. reversing the trend of layoffs isn't going to be easy, but gov't investment in certain segments of our economy to promote growth (particularly energy development & infrastructure repair) are a good start.
prevention of foreclosure is a sore issue. there are a lot of folks (especially on this site) that don't support throwing drowning homeowners a lifeline, but without a workable solution for these people, there's really no point in dumping more money in the mix. it's not necessarily a lack of credit that's seized up the housing market - it's dropping home values that leave homeowners unable to sell & homebuyers unable to get financing for asking price. if you want to stabilize home values, you have to stop foreclosure.
Oh boy, more free money!
@TorrentFreak: Really? I thought it was what the GOPers were all about. Privatize the profits, socialize the losses. We screwed up; we trusted them. Of course, by "we" I really mean the 60-odd million people who were dumb enough to vote to send George Bush back to Washington for a second term.
"Fool me once, shame on you. Fool me twice, shame on me."
Am I the only one that sees the swine returning to the trough for another serving?
@full.tang.halo: I don't know what is worse: that an index of the stock market dropped because one guy spoke or that people generally think the economy, as a whole, is in shambles because an index of the stock market dropped when one person spoke.
Where does a country that's broke get the money for a stimulus package? We already had the 700 billion bailout that came from...well probably China that we can look forward to paying off. Now a stimulus will come from...well China. I guess America won't be happy until China is ruling the US.
Let the economy hit the bottom, government needs to stay out of the way and stop prolonging the inevitable. Our money is gone and we have to live with the change. We can't keep acting like everything is the way it was, the way it was is how we got here. Comprendé?
Personally, I see myself falling for the hype and cutting back on unnecessary expenses. (Which would have been a good idea anyway.) I don't have much faith in any of the government or media reports right now. Frankly, I think all the governmental bailout (takeover) efforts are just causing more water to build up behind the dam. God help us all when it breaks.
And yes, I'm know I'm paranoid and cynical.
*shakes fists in anger*
"Damn you, Bernanke! Damn you to HELL!"
@Urgleglurk: Speaking of swine, Benanke loved making the economy "squeal like a piggy!" and wants another go at it!
@HurtsSoGood: As much as I liked to blame the Republicans for the bailout (and really I would because they where in fact the direct cause of this mess as much as they want to spin Clinton in on it despite the fact that THEY owned the legislative branch during the term they claim the cause came from) The Democrats where the ones who really hands down voted for the bailout. Both sides had a number of people who voted no though, but the republicans more so than the dems.
My pockets say yay, my brain says noooooooooo!
This won't work under McCain's "spending freeze."
I thought the first bailout was supposed to fix these credit issues? Before you tell me that it hasn't and it's going to take time, why don't we wait it out long enough to realize that we just wasted our money the first time. Our economy was slowly eroding over the last few years, it has now come to a boil. You can't fix it without letting it cool off for a while and unfortunately the boiling water is going to leave some burns.
I would have to disagree. The problem is not a byproduct of executive or legislative initiatives, but the "solutions" put in place will be influenced heavily by who becomes President and what the balance of Congress looks like.
If you read what Bernanke is saying, he wants any future stimulus to be targeted towards increasing access to credit. However, the Democrats proposed stimulus package would be one of aid to states, foods stamps, jobless benefits, and infrastructure spending. They are two completely different approaches. I have to disagree with the Democratic plan since it doesn't go after the problem at all, but merely throws money around and I would argue would extend the broader issues with the economy.
I gotta get one of those magic money trees that the government seems to have.
The sky is falling!!!!
@dragonfire81: Intentionally keeping all credit markets tight due to some bad borrowers is, to borrow a phrase from some of our political candidates, using an axe where a knife is needed.
The credit markets are frozen for everyone, good and bad users alike, that's the problem. Businesses that require short-term lending to ride out business cycles can't borrow on the corpoate paper market.
Well qualified buyers who want to buy homes in the cheapest housing market in recent history are unable to, due to the credit freeze.
Not all borrowers are "bad borrowers". Sometimes you need to borrow money for a good reason, and those borrowers (or most of them) are locked out right now, creating a self-feeding spiral of economic bad news.
Stabilizing home values is not a good idea. They are still seriously inflated in most parts of the country. Look at the average household income vs average home price. The numbers you see there explain the main issue.
@Bladefist: As I've been saying when people ask me to justify my skepticism of the motivations for and value of these bailout measures: Does anyone think that the same solutions would have been proposed had this meltdown occurred in, say, January? We voters need to give Congress a hard reboot, vacating the seats of every opportunist who supported this loathsome measure so that future representatives will, when considering a similar boondoggle, "remember what happened to everyone in '08".
Give people MORE access to EASY CREDIT? Is he nuts? He wants the stimulus package to focus on consumer credit and HOUSING!?
@TecmoTech: yeah, i had a whole paragraph on that, but i deleted it b/c i was getting a little long-winded.
if you don't want to stabilize home values, then there's really no point in throwing more money at the wall here, b/c it's not gonna stick. the way i see it, you can either allow home values to deflate & expect a protracted period of economic contraction over the next 3-7 years, or stabilize home values & reduce the impact on the economy as a whole. but i don't see how you can have it both ways.
also, i don't necessarily agree that home values are inflated so much as our incomes have stagnated or declined over the past 25 years. essentially, it's saying the same thing, but it's a question of what needs to change - home values or salaries. personally, i'd rather make more money than pay less for a home. ;)
From the NYT: "...Democratic and Republican lawmakers alike have elected to pay the bill mainly by borrowing money rather than cutting spending or raising taxes. But while the borrowing is relatively inexpensive for the government in a weak economy, the cost will become a bigger burden as growth returns and interest rates rise."
So, yeah lets go spend more money we don't have now and won't have in the future, because any monies we get will have to be applied to this mess!
@AtomicPlayboy: nice in theory, but we americans have very short attention spans (& even shorter memories).
be happy if more than a few of us remember what makes nov. 4th special in the first place...
Overspending, pet projects and fiscal mismanagement is nothing new with Congress. Senators and Congressmen get reelected by showing how they brought the most money home to their constituents. Replacing everyone will just change the faces and do nothing to solve the underlying spending issues with Congress.
@Ubik2501: MASTER BLASTER RUN BARTERTOWN!@#
Yay for another stimulus package! I'll pocket another $225ish that'll go towards something fun for the soon-to-be-Mrs, who will pocket the full amount and not get me anything nice. It's like we're already married.
The problem is that there are two huge problems.
#1 is the ravaged US banking system that unfettered Laissez-Faire principles racked on the global economy. It screwed up things so badly that the only way to hope to fix it is that we had to largely nationalize our banking system. Much in the same way that when parents let their kids play unsupervised with gasoline & matches, the firemen then have to come in and take an axe to the basement and knock out the non-supporting walls else the fire will consume the house.
Blaming the fire department for this is obviously the wrong tact.
#2 is that we're entering what looks to be a severe, prolonged recession. That's what good ol', reliable Keynesian economics can fix: prime the pump. That's why throwing billions at Wall Street bankers isn't enough. Stimulus payments to us proles is also needed. Using the house analogy, it would be our fire-wracked house also needing rewiring, since the same kids that torched the house also ruined the electrical: merely replacing the walls w/o fixing the wires will result in a ruined house.
While the deficit is an issue, it's less of one than the above two crises. Ones that a failed ideology which was given a fair (too fair, I'd say) shot to succeed.
On a different, related note: how many people so VERY concerned with deficit spending now were equally concerned when the GOP turned our surpluses into vast deficits, with Greenspan cheering it on? Argued, say, against the no-bid, billion dollar Iraq/Katrina contracts, the gold-plated, useless Pentagon projects and the Medicare no-negotiation prescription plan?
If you weren't, then you have NO right to complain about them now, when they're actually needed. Get some perspective and accountability, people. :)
I just think its ridiculous that the average family in America can't afford a home. It's not like the cost a ton to build especially most of the cookie cutter crap going up these days.
I had a radical idea that would stimulate the economy: 25% debt forgiveness on ALL mortgages. It would put more spending money in people's pockets, drop existing prices for future home sales (comps would show neighborhood houses were valued 25% less than before), more homeowners spreads the burden of property taxes, easier to acquire loan for smaller amounts... etc.
@mac-phisto: I'd heard about the idea of reducing mortgage principle as well as interest rate, and I'm actually a bit surprised that the banks haven't voluntarily taken on this task. With more and more foreclosures piling up at their doorsteps, and the fact that the value of that property is less than the loan, no matter who owns the property and the loan, it seems like banks would be more interested in taking the losses while maintaining an income-bearing relationship, rather than taking what are surely going to be similar losses, meanwhile also having to deal with forclosure and eviction, then owning and trying to unload the rapidly deteriorating property themselves.
Moving to Finland, rooming w/Santa - drop me a line if you want to split rent.
@FLEB:
Beautifully written. This idea helps all.
1. Helps responsible future homeowners because houses are now more affordable (realistically priced). Basically, this gets us to where we need to be at a much faster rate than waiting for it to happen.
2. Helps noob homeowners who got suckered into bad loans.
3. Helps economy.
4. Helps banks by keeping existing relationships and gaining new business. Yeah, they will be bruised, but will come out better in the end.
It's a win-win-win-win.
You cannot protect real estate values--they are doomed to collapse even further. The problem in the coming months isn't going to be foreclosures, but people making the rational decision to walk away from their vastly over-sized mortgages.
There is a massive amount of phantom wealth on the market. This "wealth" only exists on balance sheets. We are in a crises because it gravely and purposefully mis-valued real estate. Banks have realized that the notional value of the mortgage no longer represents the real value of a piece of real estate. When homeowners (Or rent-to-owners) realize this, then the fur will really begin to fly.
Housing will continue to retreat until the prices more accurately reflect the real value of the real estate. The fundamental utility of a home is that it provides shelter, privacy, and a place to live.
Stimulus package: Strike 1.
700 Billion Dollar bailout: Strike 2.
Stimulus package #2: Strike 3.
YOUR OUT!
*facepalm*