Ben Bernanke - Minneapolis speech pt3

8 Sep 2011 CNBC
Depressed construction has also hurt providers of a wide range of good and services related to housing and homebuilding. [oh my god]

Moreover the weak housing market has in turn adversely affected financial markets and the flow of credit [oh my god]. For example, the sharp declines in house prices in some areas have left many homeowners underwater on their mortgages, creating financial hardships for households and through their effects of rates of mortgage delinquency and default, stress for financial institutions as well.

As I noted the financial crisis of 2008-09 played a central role in sparking the global recession. A great deal has been and continues to be done to address the causes and effects of the crisis, including extensive financial reforms. However although banking and financial conditions in the United States have improved significantly since the depths of the crisis, financial stress continues to be a significant drag on the recovery both here and abroad. This drag has become particularly evident in recent months as bouts of sharp volatility and risk-aversion in markets have re-emerged [oh my god -- we desperately need liquidity provision to work here] in reaction to concerns about European sovereign debts and related strains as well as developments associated with the US fiscal situation including last month's downgrade of the US credit rating by one of the credit rating agencies. It's difficult to judge how much these events have affected economic activity so far. But there seems little doubt that they have hurt household and business confidence and that they pose on-going risks to growth.

While the weakness in the housing sector and continued financial volatility are two key reasons for the frustrating slow pace of the recovery, other factors also may restrain growth in the coming quarters. For instance, state and local governments continue to tighten their belts [oh my god] by cutting spending and reducing payrolls in the face of on-going budgetary pressures and federal fiscal stimulus is being withdrawn. There is ample room for debate about the appropriate size and role of the government in the longer-run, but in the absence of adequate demand from the private sector [Amazing] a substantial fiscal consolidation in the shorter-term could add to the headwinds facing economic growth and hiring.

The prospect of an increasing fiscal drag on the economy in the face of an already sluggish economy highlights one of the many difficult trade-offs currently faced by fiscal policymakers. As I have emphasized on previous occasions, without significant policy changes to address the increasing fiscal burdens that are associated with our ageing population and on-going health care costs, the finances of the federal government will spiral out of control in coming decades, risking severe economic and financial damage. But while prompt and decisive action to put the federal government's finances on a sustainable trajectory is urgently needed, fiscal policymakers should not as a consequence disregard the fragility of the economic recovery.

Fortunately the two goals -- achieving fiscal sustainability and avoiding the creation of fiscal headwinds for the recovery are not incompatible. Acting now to put in place a credible plan for reducing future deficits in the longer-term while being attentive to the implications for fiscal choices in the near-term can help to serve both objectives [Absolutely]

Category:

People & Blogs

Tags:

• Ben
• Bernanke
• Minneapolis
• speech
• pt3